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UC  SOUTHERN  REGIONAL  LIBRARY  FACIl  ITY 

ill    ill 

UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

LAW  UBRARY 


Wisconsin  Library  Commission 
Legislative  Reference  Department 
Comparative  Legislation  Bulletin 
No.  20. 


ACCIDENT  INSURANCE  FOR 
WORKINGMEN 


REUBEN  McKlTRICK 


MADISON.  WISCONSIN 

July,  1909 


INTRODUCTION 


This  little  summary  is  gotten  out  to  aid  the  Wis- 
conain  Special  Committee  on  Industrial  Insurance  in  its 
work.  We  hope  it  will  be  found  useful  to  librarians  and 
others  who  seek  information  on  this  ^reat  subject.  It  is 
not  complete  in  any  sense— the  subject  is  too  great.  It 
merely  summarizes  some  of  the  efforts  along  the  line  of 
casualty  insurance  in  America  and  foreign  countries. 

In  this  connection  Bulletin  No.  74  of  the  United  States 
Bureau  of  Labor  will  be  found  especially  useful,  as  it 
contains  a  summary  of  all  such  laws  in  foreign  countries. 

Charles  McCaethy, 
(Jhief  Legislative  Reference  Department 
Wisco7iiiin  Library  Commi.tslon. 


ACCIDENT  INSURANCE  FOR 
WORKINGMEN 


REUBEN  McKITRlCK 


Comparative  Le^isi^atiov   RnriiiETiN— No.   20— July,  1909 

Prepared  with  the  oo-operation  of  the  Political  Science 

Department  of  the  University  of  Wist'onsiu 


Wisconsin  Library  Commission 

Leqislative  Reference  Dep't 

Madison,  Wis 

1909 


CONTENTS 


PAGE 

KEFEKEXCE> 5 

INTK(  )I)l'CTI()X 10 

ECONOMIC  AM)  LECiAL  DEMAND 12 

PeKSOXAI,    AccinENT    IXSlKAXtK 12 

Bhii'LOYKHs'   Liability   Insikaxck 13 

Workmen's  Coi.i.kctive  Ixsikanck 13 

DEFINITIONS  AND  LEGAL  DISTINCTIONS 15 

Insirance 15 

Plans  ok  Organization 16 

Insurance  in  i\  State  Fund 16 

Insurance  in  Incorporated  Conn  panics 16 

Stock  Companies 17 

M  utual  Com[)anies 18 

Assessment  or  Co-operative  Companies 18 

Fraternal  Beneficiary  Associations 19 

Kinds  ok  CoMrANiEs 20 

Leijal  Ke^:erve  or  Level  Premium  Companies 20 

Assessment  Companies 22 

Kinds  ok  Insurance 22 

Voluntary  Insurance 22 

Compxilsory   Insurance , . .  23 

Distinction     Between     Compulsory    Insurance    and 

State    Insurance 23 

Insurance  on  Like 24 

Life  Insurance 24 

Industrial  Life  Insurance 24 

Accident  Insurance 25 

Sickness  an<l  Old  Ape  Insurance 25 

Annuities,  Indemnities,  Pensions 26 

POMCIKS 26 

Personal  Accident 26 

Employers'  Liability 26 

Workmen's  Collective 27 


CONTENTS 


PAGE 

^      Funds 27 

^                Reinsurance  Reserve 27 

r^                rjiability  Reserve 28 

jv                Contingency  Reserve  or  Surplus 28 

Reserve  or  Emergency  Fund 30 

Profits 30 

ANALYSIS  OF  BUSINESS  METHODS 31 

Stock  Companies 31 

Incorporation 31 

Disposition  of  Income 32 

Reinsurance  Reserve 33 

Other  Reserves  and  Profits 34 

Capital  Impaired,  How  Made  Good 34 

Mutual  Companies 35 

Incorporation  and  Capital 35 

Accumulation  of  Funds 37. 

Disposition  of  Funds 37' 

Capital  of  a  Mutual  Company  Defined.     When  May_p  ~! 

Assessments  Be  Made 38 

Assessment  Companies 39 

Incorporation  and  Capital 39) 

Reserves 39. 

Other  Legal  Limitations  and  Exemptions 41 

Fraternal  Beneficiary  Associations 41 

Legal  Regulations 41 

Incorporation 42 

Powers  and  Limitations 43 

Reserves 44 

ANALYSIS   OF   THE   BUSINESS   METHODS  OF  SOME 

FOREIGN    COUNTRIP]S 45 

Accident  Insurance  in  Germany 45 

Scope  of  the  Law 45 

Determination  of  Trade  Lines 46 

Incorporation 47 

Pension  Claims,  How  Liquidated 48 

Reserve  Funds 49 

Contributions,  How  Determined 50. 

Classification  of  Industries  and  Assessment  of  Con- 
tributions    51 

Accident  Insurance  in  Austria 53 

Scope  of  the  Law 53 

Organization 54 

Classification  and  Inspection  of  Industries 55 

Determination  of  Insurance  Contributions 5(j 

Reserve  Funds .  s-j" 


ACCIDENT  INSURANCE  FOR  WORKINGMEN 


PAGE 

Insurance  in  thk  Friknoly  Sociktiks  ok  England..  59 

Closely  Akin  to  Our  Fraternal  Orders 59 

Government  Supervision 59 

Repistralion 60 

Valuation GO 

METHODS  OF  CONDUCTING  STATE  INSURANCE 62 

Statk  Insukaxce  in  Marvi-and 62 

Legal  Liabilil}'  of  Employers 62 

Liability  Relieved  by  Insurance  in  a  State  Fund....  6IJ 

Powers  of  Insurance  Commissioner 63 

The  Act  Unconstitutional. 64 

Accident  Insurance  in  New  Zealand 66 

State  Insurance 66 

Abstract  of  the  Law  of  1899 67 

CONCLUSION 69 


ACCIDENT  INSURANCE  FOR  WORKINGMEN 


REFERENCES 


Aronson,  v.  R.  The  Workmen's  Compensation  Act  of  1906. 
London.     Unwin.     1901).     559  pages. 

A  ■painstakiiiK'  analysis  and  detailed  examination  of  the  the  Act  of 
1906"  taken  section  by  section.  Compared  with  the  Aci  of  1897  in  the 
light  of  all  the  dec  sions  on  that  Act.    A  legal  treatise. 

Baernreither,  J.  M.  English  Associations  of  Workingmen. 
1891.     London. 

An  liistorical  and  critical  treatment  of  the  English  Friendly  Societies 
w  th  special  reference  to  their  In-urance  featurts  by  a  member  of  the 
House  of  Deputies  in  Austria. 

Barnett,  Geo.  E.  The  End  of  the  Maryland  Workmen's  Com- 
pensation Act.  Quarterly  Journal  of  Economics,  Feb.  1905, 
pp.  :520-822. 

Brooks,  John  Gr.\iia.m.  Compulsory  Insurance  in  Germany. 
Fourth  Special  Report  of  the  U.  S.  Commissioner  of  Labor. 
Revised  Edition,  1895.     Washington. 

Clark.  Lindley  1).  Employers'  Tiiability  in  the  United  States. 
Bulletin  No.  74,  U.  S.  Bureau  of  Labor.     January,  1908. 

An  excellent  legal  treatise  of  Eiriplo.vers"  Liabilit.v  in  the  United 
States  including  l)6th  common  law  and  statutor.v  law.  Carefully  and 
exten-ively  annotated.  Alsocont  ins  full  text  of  the  emplo.vers' lia- 
bility laws  of  the  United  States  and  the  English  Compensation  Act  of 
li>06. 

Dunham,  Sylvester  C.     Accident  Insurance.     Yale  Insurance 

Lectures,  1904,  v.  2,  pp.  204-225. 
Duniia.m,   Sylvester  C.     Liability  Insurance.     Yale    Insurance 
Lectures,  1904.  v.  2,  pp.   226-249. 

A  good  explanation  of  the  principles  of  accident  and  lial>ility  insur- 
ance as  conducted  b.v  private  corporations. 

Eastman,  Crystal.  Employers'  Liability.  Published  by  the 
New  York  Branch  of  the  American  Association  for  Labor  Leg- 
islation.    Xew  York  City. 

Elliott,  A.     Workmen's  Compensation  Act  of  190(). 

"An  admirable  treatise  upon  the  English  Act  of  ISKW.  giving  the  text 
of  the  law.  legal  decisions,  with  appendices  containing  rules  of  pro- 
cedure, forms,  regulations,  official  publications,  etc." — Lewis. 

Farnam,  Henky  W.  (Jovernment  Insurance.  Yale  Insurance 
Lectures,  1904,  v.  2,  pp.  288-30:?. 

An  exposition  of  manner  in  which  government  Insurance  is  con- 
ducted. 


ACCIDENT  INSURANCE  FOR  WORKINOMEN 


Fahxam,  Hkxry  W.     Operation  of  C'omi)ulsory  Workmen's  In- 
surance    in    (iermanv.     Yale    Insuranc-c    Lectures,  li»0-l,  v.  2, 
pp.  304-328. 
A  good  <li.sous.slon  of  the  social  effeet  of  the  German  s.vstem. 

Farxam,  Hkxry  AV.     The    P.»*ychology   of   German    Workmen's 
Insurance.     Yale  Review.  May,  1904,  v.  13,  pp.  98-113. 
"\  statement  of  the  ol>jeetions  to  comDulsoiw  Insurance." 

Farxam.  Hkxky  W.  (ierman  Workmen's  Insurance — A  Post- 
script.     Yale  lieview.  Feb.   ]90o.  v.  13,  pp.  435-438. 

Foot,  Ai-krk».  The  Practice  of  Insurance  A;L?ainst  Accidents 
and  Employers'  Liability.     190}>.     London. 

.\  treatise  of  the  practice  of  Insurance  in  lesnoct  to  Emnlo.vers"  lia- 
l»ilily  with  prints  of  the  Eii>rlish  Acts  of  Parliament  from  ls46  to  lOOC. 
"Tilt  l»cK)k  treatsof  the  hi.st()rl<-al.  technical  and  judicial  l)asls  of  t>otli 
bianclies  of  Insurance  remarkal)ly  well."— T/if  JuurtKfl  Un-  hiKurnnce 
Scinire.  i>ul)lished  liy  the  (ierman  .VsstxMation  for  Insurance.  Berlin. 

FoRKMAX,  S.  E.  Cost  of  Industrial  Insurance  in  the  District  of 
Columbia,  bulletin  No.  07.  T'.  S.  Bureau  of  Labor.  Nov. 
190(5.     pp.  781-822. 

Frelxd,  Erxst.  Constitutional  Aspects  of  Employers'  Liabil- 
ity.    Green  Bag,  Feb.  1907. 

Gem-er,  Dr.  Leo.  (iesetze  und  Verordnuni^on  betrcffend  die 
Fnfallversichoruns:  dur  ArbL'iter.     Wien.  18i>7. 

Withe.xnlanationsconcernint,'  the  mat«'rial  and  concernins  the  mini- 
sterial, administrative  ar;d  judicial  practice. 

Griffix,  a.  p.  C.     Select  List  of  References  on  Workinjrmen's 

Insurance.     Government  Printing  Office.     1908.     Washington. 

(ieneral:  I'nited  States:  (ireat  Britain:  Germany;  France:  Belgrium. 

IIaixks,  Tiiorxwei.l.     Insurance  for  Workmen  in  Foreign  Coun- 
tries. 
I'.  8.  Consular  Reports.  No.  295.  April  1905.  pp.  123-129. 

Hexdersox,  Chas.  R.  industrial  Insurance  in  the  United  States, 
1909.     The  I'niversity  Press,  Chicago. 

The  liest,  most  comiilet*"  and  relial)le  collection  and  exposition  of  the 
various  methods  and  devices  now  belnjr  w.sed  In  the  I'nited  States  for  in- 
.suring  workmen  atrainst  accident  and  sickness.  Includes suchsubjects 
as  law  of  emplo.vers'  lia))ility.  insurance  in  private  corporations,  insur- 
ance in  fraternal  ortler.s.  l>enefit  features  of  trade  unions,  mutual  re- 
lief association  .  and  railway  pn)videnl  associations.  .\lso  contains 
great  many  recent  statistics  concerning  cost,  manairement.  an  1  results. 

Laxdis,  Abb.  Friendly  Societies  and  Fraternal  Orders.  1900. 
The  Fraternal  Monitor  Co.     Rochester.  N.  Y.     133  pages. 

X  history  of  tlie  legislation,  supervision,  mortality,  experience,  re- 
forms, rates  of  assessment  and  present  and  past  condition  of  the  Eng- 
lish Friendly  Societies,  with  special  n^fei-ence  to  the  application  of 
their  experience  to  the  needed  cha  ges  in  the  plans  of  the  American 
Fraternal  Orders. 

Lewis.  Fraxk  W.  State  Insurance.  1909.  Houghton,  Mifflin  Co., 
Boston. 

A  good  Stat ment  of  the  need  of  workingmen  for  an  insurance  against 
sickness.  a<'cident  and  old  age:  also  of  the  evolution  of  the  doctrine  of 
employers'  lialillity  and  an  argument  for  compulsor.v  state  insurance. 


ACCIDENT  INSURANCE  FOR  WORKINOMEN 


PiNKUs,  NoKBERT.  Workmen's  Insurance  in  Germany.  Yale  Re- 
view. Feb.  1904,  vol.  12,  pp.  372-888;  v.  13,  May  1904,  pp.  72-97; 
Nov.  1904.  pp.  296-395;  Feb.  1905,  pp.  418-434.  Also  printed 
separately. 

RuBiNOW,  T.  M.     Compulsory  State  Insurance  of  Workingmen, 
Annals.     Sept.  1904,  v.  24,"^  pp.  331-342. 
■'Advocates comuulsor.v  state  insurance  and  discusses  German  law." 

RuBiNOW,  T.  M.     Labor  Insurance.     Journal    of  Political  Econ- 
omy.    June,  1901,   v.  12.  pp.  302-381. 
"i)eals  mainly  with  the  economic  princiules." 

WiLLOUGUBY,  W.  F.  Workingmen's  Insurance,  1898.  Crowell 
&  Co.  N.    Y. 

One  of  the  best  and  most  complete  analyses  of  the  different  sy .stems  of 
employers'  liabilit.y  and  workluymen's  insurance  in  the  United  States 
and  foreign  countries  in  print.  From  a  statistical  point  of  view  it  is  out 
of  date. 

Zacher, -GfiiuKG.  Die  Arbeiter  Versicherung  im  Auslande,  Ber- 
lin; Yerlag  der  Arbaiter-Versorgung.  A.  Troschel,  1903-1907. 
12  parts  in  1  vol.  and  5  parts. 

Includes  laws  for  Denmark  Sweden,  Norway.  Huns^ary.  En<rland, 
ItaLv,  Austria.  Spain,  Finland.  Russia  and  Germany. 

Austria.     Internationaler  Arbeiterversicherunirs  Ronpress,  AVien, 
1905.     2  vols. 
Shows  the  status  of  workmen's  insurance  In  the  principal  countries. 

CoNNECTicrT.  Special  Committeonppointed  by  legislature.  Re- 
port regarding  legislation  to  regulate  the  liability  of  employers. 
1907.     28pp. 

Connecticut.  Legislative  Committee.  Report  regarding  legis- 
lation regulating  the  liability  of  employers.     1909. 

England.  Society  of  Comparative  Legislation,  .lournal  1897, 
vol.  2.     Rivingtons,  London. 

A  caieful  analysis  of  the  laws  relating  to  workingmen's  insurance  in 
foreiijn  countries. 

England,  lilue  Hook.  Home  Office  Departmental  Committee 
on  Workmen's  Compensation,  1904,  1905. 

France.  Bulletin  du  Comite  Permanent  (/ongres  International 
des  Accidents  du  Travail.     18  vols,  to  1907. 

Germ.\ny.  Handbuchderrnf'allversicherung.  (written  by  mem- 
bers of  the  German  Imperial  Insurance  Bureau)  1897. 

Germany.  Imperial  Insurance  Bureau.  The  Workmen's  Insur- 
ance of  the  German  Empire,  St.  Louis  Exposition,  1904.  Ex- 
posed in  Hve  parts: 

Origin  and  Social  Importance. 

Statistics  of  the  Workmen's  Insurance. 

Prevention  of  Accidents  and  Workmen's  Hygiene. 

Workmen's  Insurance  and  National  Health. 

Workmen's  Insurance  and  National  Economy. 


ACCIDENT  INSURANCE  FOR  WORKINQMEN 


Ii-MNOiH.  Industrial  Insurance  Commission.  Koport  to  the 
(Jovonior.     ]!H)7. 

Contains  a  l)ri«'f  hut  careful  stnlenu>nt  of  th«'  law  of  eniuloyers'  lla- 
l)IUt.v.  workmen's  conux'iisatlon  and  tlu-  methods  of  an-ldent  insuran<T> 
in  forelirn  countries:  also  of  the  deffcts  of  our  present  system  and  a 
coi>y  of  the  liill  uro|K)sed  for  a  system  of  voiuntary  insurance. 

M.\ss.\<iiusKTTs.     Joint  Special  Le^nslative  Committee  on  liabor. 
Majority  report   in  reference  to  a  compensation  act.     In  re- 
port of  committee  Jan.  11»08.  pp.  52-72  House  Document,  1190. 
1  Jos  ton. 
M.\ss.\cnisKKrs.     IjO<rislative  Committee.     Report  on  Relations 

between  employer  aiul  employee,      lioston,  1904,  118p. 
New  Yokk.     Translations  of  the  laws  in  foreijrn  countries  will 
be  found  in  the  17ih  .\nnual  Report  of  the  New  York  Hureau 
of  Labor  as  follows: 
Austria.    Accident  Insurance  law  of  Dec.  28.  iss".  pp.  988-98S>.    Act  of 
.luly  L'O.  IsiH.     K.Ntendinsr  tlie  accident  insurance  law  of  188".  pp. 
l»7i'!>l'2. 
Denmark.    Law  of  Denmark  concernintr  the  compensation  of  Acci- 
dents to  Workmen.    Jan.  7.  1898.  pp.  umj-10,51. 
Finland.    Law  of  Finland  coiicerninsr  the  liatjllityof  employers  to 
make  conu)ensation  for  IxMlily  injuries  to  their  employees.     Dec. 
5.  1898.  pp.  UHI-104.S. 
Fkaxc'E.    The  French  NYorkmen's  Compensation  Act.    .Vpril  5).  1898. 

pp.  1082-1087. 
(iEKMANY.    Employei-s"   Liability  Act  of  1871.   p.  814.    Insurance  of 

Workmen  against  .Vccidents.-   July  6.  1884,  pp.  815-820. 
Italy.    Law  of  Italy  concernintr  Workmen'.s  Insurance  against  Acci- 
dents.   .Mar.  17.  IHitf*.  pp.  "1075-1081. 
Norway.    The  Norwetrian  law  concern ing  the  Insuranc<*  of  Factory 
Employees  against  .\ccidents.    .luly  2.'{.  18i>4.  pp.  103;{-1040. 
Spain.    The  Spanish  Workmen's  Compen.sation  Act.    Jan.  30,  1900.  pp. 

1097-1100. 
SwiT/.ERLANP.    Laws  Of  .Switzerland  concerning  the  liabilit.v  of  em- 
ployers to  make  comjK'nsatioii   for  iiersonal   injuries  to  workmen. 
Acts  of  1875.  1881  and  1887.  l)|).  H2.")-1129. 

New  York.  Emi)loyers*  Liability  and  Accident  Insurance  Laws 
Abroad.  Bulletin  No.  .'U.  Rureau  of  Labor.  Sept.  1907,  pp. 
357-:wi. 

I'nitki)  St.\te8.  Compulsory  State  Insurance  Ajrainst  Old  Apre, 
Disability,  etc.  Report  of  the  Industrial  Commission  on  the 
Condition  of  Foreign  Legislation  Upon  Matters  Affecting  Gen- 
eral Labor.     1JX)1,  v.  IG,  pp.  228-241. 

T'mtki)  .States.  Compensation  for  Accidents.  Employers'  Lia- 
bility, Kinal  Rejiort  of  Industrial  Commission.  1902.  v.  19, 
pp.  5):{2-9:{9. 

TxiTED  .^TATKs.  The  State  Co-operative  Accident  Insurance 
Fund  of  Maryland.  Bulletin  No.  57,  U.  S.  Bureau  of  Labor. 
Mar.  1905.     pp.  (545-848. 

A  detailed  statement  of  the  l)uslness  transacted  under  the  Insurance 
Law  of  1!"02. 

Wisconsin.  Senate  Committee.  Practicability  of  Government 
and  State  Insurance.  Majority  Report  on  Wisconsin  Legisla- 
ture. 1907. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN 


Wiscoxsix.    Senate  Committee.    Minority  Report  on  Praclicabil- 
itv  of  Government  and  State  Insurance.     Wisconsin  Legisla- 
ture, 1907. 
Wis(  oxsiN.     Industrial  Accidents  and  Employers'  Liability  in 
Wisconsin.     Uir.h    Biennial   Report  of   the  Wisconsin  Bureau 
of  Labor  and  Industrial  Statistics.     Part  1,  19C8. 
Contains  statistics  of  Accidents  in  Wisconsin,  an  estimate  of  tlie  cost  to 
tlie  st;itt',  tlie  employer  and  tlie  working'man  and  an  exposition  and 
statement  of  mutual  accident  associations,  foreig-n  in.surance  systems 
and  proiKJsed  reforms.    An  excelleYit  treatment  of  the  subject. 

Wisco.Nsix.  Industrial  Accidents  in  Wisconsin  (Second  Report) 
14tli  Biennial  Report  Wisconsin  Bureau  of  Labor  and  Indus- 
trial Statistics.     Part  2.     19Q9. 


10  ACCIDENT  INSURANCE  FOR  WORKINGMEN 


INTRODUCTION 


The  one  (luality  of  supreme  importance  in  all  i)lans  and 
methods  of  iusurance  is  solvency,  the  ability  to  pay  the 
benefits  a<^reed  upon.  Some  governments  engage  in  the 
insurance  business,  and  in  such  instances  the  credit  of  the 
government  stands  as  a  guaranty  for  the  payment  of  the 
policy-  claims.  This  is  state  insurance.  Tlie  more  usual 
method  of  conducting  the  insurance  business,  however, 
is  through  the  medium  of  private  corporations  under  gov- 
ernment supervision.  All  the  governments  of  the  pro- 
gressive countries  in  which  insurance  is  very  extensively 
carried  on,  have  worked  out  certain  tests  whereby  they  are 
able  to  ascertain  the  ability  of  companies  operating  under 
their  jurisdictions  to  fulfill  the  obligations  assumed.  These 
tests  are  as  varied  in  their  character  and  rigidity  as  the 
different  states  and  countries  in  which  they  are  applied, 
but  they  usually  take  the  form  of  prescribing  a  regular 
procedure  for  incorporation;  of  re([uiring  the  creation  and 
maintenance  of  certain  capital  accounts  and  reserve  funds; 
of  prescribing  the  different  kinds  of  securities  in  which 
funds  may  be  invested;  of  establishing  a  standard  by  which 
various  occupations  and  industries  may  be  classified  accord- 
ing to  the  hazard  involved;  of  providing  the  manner  in 
which  premiums  and  contributions  shall  be  determined 
and  collected:  of  fixing  regular  periods  in  which  examina- 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  11 

tions  of  accounts  shall  be  made  and  statements  rendered; 
and  of  determining  the  manner  in  which  impairments  of 
capital  or  deficiencies  in  assets  shall  be  made  good.  These 
legal  regulations  are  the  expression  in  statute  form  of  the 
principles  and  business  methods  adopted  by  strong  private 
companies,  and  are  very  largely  based  on  their  previous 
experience.  The  problem  in  all  efforts  to  insure  woi*k- 
ingmen  against  accidents  is  to  devise  a  method  which  will 
so  fit  into  the  economic  situation  as  not  to  be  too  burden- 
some on  either  the  employer  or  the  employee  and  still  be 
financially  sound.  This  bulletin  is  the  result  of  an  effort 
to  collect  and  arrange  in  convenient  form  the  various  tests 
above  referred  to,  and  to  indicate  the  possible  sources  of 
material  for  a  comparative  study  of  the  various  methods 
of  insurance  now  in  use  for  ihe  benefit  of  injured  w^ork- 
men.  No  pretense  is  made  to  an  exhaustive  or  even  a 
complete  study  of  this  subject,  but  the  primary  purpose 
has  been  merely  to  outline  the  field  from  the  standpoint  of 
those  essentials  reciuired  in  state  supervision,  and  to  sug- 
gest sources  of  information  on  particular  i)oints. 


12  ACCIDENT  INSURANCE  FOR  WORKINOMEN 


ECONOMIC  AND  LEGAL  DEMAND 


Purpose 

The  primary  puri)ose  of  accident  insurance  for  working- 
men  is  to  provide  a  certain  and  adequate  return  for  the 
economic  loss  of  wages  due  to  personal  injury  in  the  course 
of  employment. 

Persona.^  Accident  Insurance 

The  common  law  doctrine  provides  no  legal  protection 
for  Avorkmen  except  in  cases  of  negligence  on  the  part  of 
employers.'  To  a  limited  extent  this  rule  is  being  modified 
in  certain  states  by  statutory  provisions  which  increase  the 
responsibility  of  the  employer  for  accidents,  especially  in 
so  far  as  they  may  be  due  to  the  negligence  of  a  fellow 
sei'vant.'^  The  lack  of  legal  protection  and  the  personal 
care  for  themselves  and  those  dependent  upon  them  prompt 
many  individual  workmen  to  insure  themselves  against  acci- 
dents. This  gives  rise  to  a  demand  for  personal  accident 
insurance  which  is  supi)lied  by  legal  reser\^e  companies, 
assessment  and  fraternal  companies  or  trade  unions  which 
conduct  a  benefit  department  on  the  assessment  plan. 


•  Blaok— Law  and  Pra«;tlc«>ln  Accident  Cases,  v.  71. 

'i  CI  ark -Employers'  Liability  In  United  States.    Bulletin  No.  74.  U.  S. 
Bureau  of  Lal)or.  |i.  107. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  13 

Employers'  Liability  Insurance 

All  employers  are  liable  under  the  common  law  for  in- 
juries to  their  workmen  which  are  due  to  their  own  negli- 
gence.' In  some  states  the  legal  responsibility  of  employ- 
ers in  certain  industries  is  considerably  increased  by  statu- 
tory abrogation  of  the  fellow-servant  rule,  and  modifica- 
tion of  the  laws  of  comparative  negligence  and  assumption 
of  risk.^  In  some  foreign  countries  particularly  England 
and  New  Zealand  employers  are  made  legally  liable  for 
all  accidents  regardless  of  negligence.'  The  payment  of 
a  damage  suit  or  the  payment  of  a  personal  injury  claim 
in  lieu  of  a  suit  may  and  frequently  does  place  the  finances 
of  an  employer  in  a  critical  condition.  In  order  to  avoid 
such  a  contingency  many  employers  insure  themselves 
against  their  legal  liability  for  injury  to  their  employees. 
This  gives  rise  to  a  demand  for  what  is  known  as  "Em- 
ployers' Liability"  insurance  which  is  supplied  by  legal 
reserve  insurance  companies  organized  on  either  the  stock 
or  mutual  plan. 

Workmen's  Collective  Insurance 

Some  employers  out  of  motives  purely  personal  prefer 
to  insure  their  employees  against  accident  rather  than  to 
insure  themselves  against  legal  liability  for  the  accident 
should  it  occur.  In  that  event  the  employers  usually  ob- 
tain a  policy  which  covers  all  the  workmen  in  the  plant 
and  pay  the  premium  for  it  but  they  frequently  share  the 
cost  of  such  insurance  with  their  workmen  by  deductions 


'  Black  -Law  and  Practice  in  Accident  Cases,  p.  71. 

« Clark— Employers'  Liability  in  United  States.  Bulletin  No.  74,  U.  3. 
of  Lalxjr,  p.  114,  et  seq. 

'English  Workmen's  Compensation  Act.  Bulletin  No.  74,  U.S.  Bureau 
of  Latxjr,  pp.  144-158. 


14  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

from  the  pay  roll.'  In  some  foreijjrn  countries,  notably 
Germany  and  Austria,  employers  in  certain  industries  are 
re(iuired  by  law  to  insure  their  employees  against  accident 
rather  than  to  insure  themselves  against  legal  liability  for  the 
accident.''  This  situation  gives  rise  to  a  demand  for  what 
is  known  as  "Workmen's  Collective"  insurance  which  ia 
furnished  both  in  the  United  States  and  in  foreign  coun- 
tries by  legal  reserve  companies  organized  on  the  stock  or 
mutual  plan. 


'  Hendei"son— Industrial  Insurance  in  T'.  S.  p.  177. 

^Hvo  Accident  Insurance  Laws  of  Austria  and  Germany,  17  Ann.    Kpt, 
N.  V.  Bur.  of  Labor.  18tKt.  i»ji.  815  and  H77. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  15 


DEFINITIONS    AND    LEGAL    DIS- 
TINCTIONS 


Insurance  Defined 

Insurance  has  been  defined  in  general  terras  in  common 
law  as  a  contract  by  which  one  party  undertakes  to  indem- 
nify another  against  loss,  damage  or  liability  arising  from 
an  unknown  or  contingent  event.'  This  definition  has  been 
written  verbatim  in  the  statutes  of  California,  North  Dakota 
and  South  Dakota."  Other  definitions  meaning  practically 
the  same  though  expressed  in  different  form  may  be  found 
in  the  statutes  of  Alabama,  Kentucky,  Massachusetts,  Min- 
nesota, Mississippi,  North  Carolina,  Tennessee,  Texas  and 
Washington.*  Another  common  law  definition  has  been 
stated  as  follows:  'Insurance  is  a  contract  by  which  one 
party,  in  consideration  of  a  price  paid  to  him  adequate  to 
the  risk,  becomes  security  to  the  other  that  he  shall  not 
suffer  loss,  prejudice,  or  damage  by  the  happening  of  the 
perils  specified  to  certain  things  which  may  be  exposed."* 


'  Cooley— Briefs  on  Insurance  Law.    vol.  1.    u.  4. 

"Cal.  C.  C.  (1!)06)  Sec.  2527;  N.  D.  C.  C.  (1905),  .«-ec.  5890;  S.  D.  C.  C.  (1908). 
Sec.  1793. 

'Ala.  C.  C.  (1896)  Sec.  2575:  Ky.  St.  (1903)  see.  041;  Mass.  L.  of  1907.  ch.  576 
sec.  3:  Minn.  R.  L.  (1905)  sec.  1590:  Mls.s.  Code  (ISXXi^  sec.  2563:  No.  Car. 
R.  L.  (1905).  sec.  4679;  Tenn.  Code  (1896),  sec.  .S275;  Tex.  R.  8.  (1895)  Art. 
30tMa;  Wash.  Annotated  C.  &  St.  (1897)  sec.  28:{8. 

<  22  CYC  1384. 


16  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

From  an  economic  point  of  view  insurance  may  be  defined 
as  a  scientific  method  whereby  the  burden  of  a  particular 
loss  or  damage  is  distributed  throughout  a  group  of  per- 
sons exposed  to  similar  loss  or  damage,  and  associated  for 
the  purpose  of  assuming  tfaat  burden. 

Plans  of  Organization 

The  business  of  insurance  is  usually  conducted  through 
one  of  two  general  plans  of  organization,  viz:  a  state  in- 
surance fund  or  an  incorporated  company. 

ItDninmre  in  o  State  Fund.  Some  foreign  countries 
have  organized  a  state  insurance  department  in  which  a 
jjerson  or  firm  may  become  insured  just  as  in  an  incorpor- 
ated company.  State  officials  collect  and  administer  the 
funds  and  the  state  guarantees  the  payment  of  policy 
claims  in  case  of  a  deficit  in  the  cash  funds  of  the  insurance 
department.  A  good  illustration  of  state  insurance  is 
found  in  New  Zealand  whei'e  the  State  Insurance  Depart- 
ment is  organized  into  three  branches,  viz:  fire,  accident, 
and  life;  and  furnishes  insurance  on  strictly  business  prin- 
•ciples  in  competition  with  incorporated  companies.'  Nor- 
way conducts  a  casualty  insurance  business  through  its 
State  Insurance  office.  In  this  instance  the  state  pays  all 
the  expenses  of  the  central  office,  half  the  expenses  of  the 
local  branches  and  meets  deficits."  Government  insurance 
through  the  post  office  of  England  is  also  another  illustra- 
tion of  state  activity  along  this  line.^ 

Insuranrt  in  Incorporated  Companies.  The  more  usual 
Tnethod  of  conducting  insurance  is  through  the  medium  of 


'  Reeves.  W.  P.  North  American  Review.  January.  1936:  N.  Zealand 
Law.s.  (189i»)No.20. 

»  Bulletin  No.  34.  N.  Y,   Bur.  of  Lalwr.  (I'.iOT)  p.  360. 

*  For  the  law  relating  to  jfovernment  insurance  throusrii  tlie  Post  Office 
_se«  45  and  46  Vicl.  c.  51.  For  statement  and  statistics  of  results  of  this 
insurance  .see  Henderson— industrial  Insurance  p.  107. 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  17 

incorporated  companies.  Under  this  system  the  state 
supervises  and  i-egulates  the  insurance  business  but  does 
not  conduct  it.  Insurance  corporations  ai'e  formed  under 
general  laws,  which  collect,  administer  and  disburse  all 
the  funds  and  assume  all  liability  for  the  payment  of  policy 
claims  and  expenses  in  case  of  a  deficit  in  the  cash  funds. 

The  state  fixes  a  standard  of  solvency  by  requiring  com- 
panies to  have  certain  amounts  of  capital,  to  maintain  cer- 
tain reserve  funds,  to  invest  their  assets  in  legally  author- 
ized securities,  to  render  annual  statements  and  to  comply 
with  certain  other  legal  regulations.  It  thereby  protects 
the  policy  holders  from  an  improper  conduct  of  the  busi- 
ness through  its  lawful  agents,  the  insurance  corporations. 
This  is  the  method  adopted  by  all  of  the  United  States,  by 
England  except  in  case  of  life  insuranca  through  the  post 
office,  and  by  Austria  and  Germany. 

Stock  Companies.  The  Missouri  statutes'  define  an  in- 
surance company  organized  on  the  stock  plan  as  one  which 
is  owned  and  controlled  entirely  by  its  stockholders,  and  in 
the  management  of  the  profits  of  which  the  policy  holders 
are  not  allowed  to  participate.  It  is  pointed  out  in  common 
law  that  a  stock  corporation  is  organized  for  the  profit 
of  its  stockholders,  "its  policies  are  issued  solely  upon 
the  credit  of  its  capital  stock  to  persons  who  may  be  en- 
tire strangers  to  the  corporation,  who  acquire  by  reason  of 
their  policies  no  right  of  membership  and  no  right  to  par- 
ticipate in  its  profits,  and  who  subject  themselves  to  no 
liability  by  reason  of  its  losses."^  In  all  these  particulars 
stock  companies  differ  from  those  organized  on  the  mutual 
plan.     The  insured  have  an  interest  in  stock  companies, 


'  statutes  (I90;i).  sw.  7853. 
^  21  Am.  &  Ensr.  Eno'i".  of  Law  254. 
2 


18  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

"however,  even  though  not  entitled  to  share  in  the  profits, 
nor  responsible  for  deficits,  because  accumulations   from 
their  premiums  are  in  the  company's  keepinor  as  reserves.' 
Mutual    Companies.      '  A  corporation  doinsr  an  insur- 
ance business,  which  has  no  capital  stock  and  in  the  man- 
:agement  and   profits   of   which  the  policy    holders  alone 
participate,    is  a   mutual    companj'."'     The  essential  fea- 
tures of  a  mutual  company  are  that  all  policj'  holders  are 
members  of  the  company,  that  the  companies  are  required 
by   law  to  have  a  minimum  membership,  that  the    funds 
are  made  up  from  casli  premiums  and  assessable  premium 
notes,    and   that   the    policy  holders    participate    in    the 
profits.'     Certain  funds  of  a  mutual  company  in  Illinois 
have   been  defined  by  statute  as  the  capital   of  the  com- 
pany,* and  in  a  few   other  states  mutual  companies  have 
•what  is  known  as  a  guarantee  capital,'  but  a  guarantee  fund 
-or   the   iKiyment   of  cash   premiums  does   not  change  the 
-character  of  a   mutual  company  to   that  of  a  stock  com- 
pany. 

Assessment  or  Co-ojterdtlre  Companies.  An  assess- 
ment or  co-operative  company  is  one  which  contracts  to 
pay  a  benefit  to  the  designated  beneficiary  upon  the  death 
or  physical  disability  of  the  insured,  which  benefit  is  con- 
ditioned not  upon  fixed  payments,  but  upon  the  collection 
•  of  assessments  from  time  to  time   upon    persons  holding 


*  Dawson,  The  Business  of  Life  Insurance,  u.  119. 
'  Mo.  A.  S.  (1900)  Sec.  7853. 

»22  CYC  1410:  8pruani-e  v.  Farm»«i-s'  etc.  Ins.  Co.  10  Pa.  2S5-.  21  Am.  &  Eiw. 
Encyc.  of  Law.  253:  Cooley— Briefs  on   Ins.  Law.  v.  1.  p.  51;   Planters  Ins. 
•Co.  V.  Comfort.  50  Miss.  002:  Mulroy  v.  Knitrhtsof  Honor.  28  ,Mo.  .\pp.  4«3. 

*  III.  Laws  of  1905.  p.  293.  Sec.  9. 

'Colo.  L.  of  1907.  c.  193.  sec.  25:  Cal.  C.  C.  (1900)  sees.  437  9:  Pa.  Ins.  Law 
•(1905).  pp.  2(*-9:  Mich.  Ins.  Law  (1907).  sec.  13-10. 

•Cooley— Briefs  on  Ins.  Law  v.  1.  p.  51.    See  also  Dawson,  The  Busines-sof 
Life  Insurance,  chapters  14  and  15. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  19 

uiinilar  conti'acts.'  Such  companies  are  usually  organized 
on  the  mutual  basis  and  exist  solely  for  the  benefit  of  the 
members  and  their  beneficiaries  and  not  for  profit.  In 
twenty  states  they  are  required  to  maintain  an  emergency 
fund'  and  in  six  others  ai'e  permitted  to  do  so.  In  a  few 
states  the  maximum  benefit  is  limited  to  the  amount  that 
can  be  rsalized  from  a  periodical  call  or  assessment.* 

Jh^rateDial  Bauficiary  Astiorfationti.  A  Fraternal 
Beneficiary  Association  is  usually  defined  in  the  statutes 
as  one  which  is  organized  and  conducted  for  the  sole  bene- 
fit of  its  members  and  not  for  profit;  which  has  a  lodge 
system  with  a  ritualistic  form  of  work  and  a  representa- 
tive form  of  government,  employs  no  paid  agents  except 
in  the  organization  and  supervision  of  the  work  of  the  lo- 
cal lodges  and  pays  its  losses  and  expenses  and  accumu- 
lates its  reserves,  if  any,  from  voluntary  donations,  dues 
or  assessments.  The  lodge  system  with  the  secret  ritual 
and  the  representative  form  of  government  are  the  char- 
acteristics of  the   fraternal   beneficiary  association  which 


>cf.  definitions  In  Ala.  C.  C.  (1907)  sec.  3564:  Cal.  C.  C.  sec.  453d:  Colo.  L. 
of  ISW.  c.  193.  sec.  71:  111.  L.  ot  (189H)  p.  117.  .sec.  11:  Ind.  Burns  A.  S.  (1908) 
sec.  4748:  la.  Code.  (1897)  sec.  1784;  Me.  K.  L.  (1903)  D.  497:  Mass.  U.  L.  (1902) 
c.  120,  sec.  1:  Minn.  K.  L.  (1905)  sec.  ltj.>9:  Mo.  St.  (1906)  sec.  7901:  Mont.  C.  C. 
(1895)  sec.  721:  N.  V.  R.  S.  (19J5)  v.  2.  p.  1885;  U.  S.  Ins.  Law  (1907).  i>.  43; 
Tenn.  L.  of  1897,  c.  127:  Va.  L.  of  19*5.  p.  138;  Wis.  L.  of  1907,  c.  546. 

"  Ala.  C.  C.  (1907)  sec.  3588:  Arlf.  Kirb.v's  Digest  (1904)  sec.  4.348:  Cal.  C.  C. 
453h:  III.  R.  H.  (1905)  c.  73.  .sec.  237;  Ind.  Burns  A.  S.  (liH)8)  sec.  4749;  Kas. 
G.  S.  (1905)  sec.  3644;  Ky.  St.  (1903)  sec.  662:  Me.  R.  L.  (1903)  sec.  498:  Mass. 
R.  L.  (1902)  c.  120.  sec.  10;  Mich.  Ins.  Law  (UX)7)  sec.  94:  Minn.  R.  L.  (1905) 
sec.  1901:  Mo.  St.  (1906)  sec.  7905:  Mont.C.  C.  (1895),  sec.  724:  N.  II.  L.  of  1897, 
c.  38;  No.  Car.  R.  L.  (1905)  sec.  4792:  N.  Y.  R.  S.  (ISX)5)  v.  2.  p.  1888;  O.  Bates 
A.  S.  (1908)  sec.  36301;  R.  I.  Ins.  Law  1907.  p.  45;  Tenn.  L.  ot  18;i7.  c.  127.  sec. 
7;  Vt.  1'.  St.  (1906)  sec.  4771;  Va.  L.  of  1906.  p.  147. 

'Ark.  Kirby's  Digest,  .sec.  4.348;  Conn.  G.  S.  (1902)  sec.  3607:  Ga.  Ins.  Law 
<1905)  p.  15,  sec.  14;  Ind.  Burns  A.  S.  (1908)  sec.  4751:  «jre.  St.  (1903)  sec.  3750; 
Te.x.  L.  of  1905.  c.  125;  Wis.  L.  of  1907,  C.  507. 

*  Nebr.  Cobbey's  G.  L.  (1907)  .sec.  6168  and  6471:  O.  Bates  A.  S.  (1908)  sec. 
3630;  Te.x.  L.  of  1903,  c.  Ill:   Va.  L.  of  1906,  p.  150:  Wy.  R.  S.  (1899)  sec.  3277. 


20  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

distinguish  it  from   the  assessment  or  co-operative  com- 
pany.' ■ 

Kinds  of  Companies 

Companies  are  usually  classified  in  one  of  two  groups, 
either  as  assessment  companies,  or  as  '  old  line",  legal 
reserve"  or  "level  premium"  companies,  depending  upon 
the  manner  in  which  they  conduct  their  business.  The 
terms  "old  line,"  "legal  reserve"  and  '  level  premium" 
when  used  in  this  sense  are  synonomous  and  are  frequently 
used  interchangeably,  but  there  is  a  very  essential  differ- 
ence between  this  kind  of  insurance  and  assessment  insur- 
ance. 

J^evel  Premium  Companies.  Level  premium  insur- 
ance may  h?  defined  as  that  insurance  which  is  fur- 
nished in  return  for  a  periodical  lixed  premium,''  pay- 
able in  advance  and  based  on  experience  tables  without 
reference  to  the  losses  or  expenses  which  may  be  act- 
ually experienced  in  any  particular  year,  as  a  price  paid 
for  the  assumption  of  risk,  and  for  which  the  insured 
is  relieved  of  liability  for  anj'  assessment  to  cover  un- 
expected losses  or  expenses.  Level  premium  companies 
charge  a  premium  sufficient  to  maintain  such  reserves  as 
will  enable  the  company  to  carry  out  its  own  obligations 
on   the   basis  originally  agreed   upon   and   to    protect    it 


>  cf. definitions  in  \rk.  Kirhy's  Ditrest  (1!HH)  sec.  4351:  Cal.  C.  C.  (19lXi)  se<;. 
451:  Colo.  L.  of  IW".  f.  1!«.  sec.  73:  Conn.  (i.  S.  (liKKJ)  sec.  3582:  Del.  Laws.  v. 
22,  c.  W.  sec.  ti:  Idaho  C.  C.  (1!>;>1)  sec.  224t):  111.  R.  S.  (1905)  c.  73.  sec.  258:  Ind. 
Burns.  R.  H.  (1908)  sec.  4764:  Me.  K.  S.  (liHtt)  p.  .500:  Md.  G.  L.  (19^3)  Art.  23. 
sec.  210:  .Mass.  K.  L  (1SX)2)  Ch.  119:  Mich.  Ins.  Law  (19;»7)  ec.  144:  Minn.  L. 
of  1907.  <•.  321.  .sec.  1:  Mis.s.  Code  (1906)  sec.  2i538:  Mont.  C.  C.  (1895)  sec.  721: 
Nebr.  Cobbey's  (J.  L.  (19)7)  >ec.  6^35:  N.  H.  L.  of  189.5.  c.  8t>:  No.  Car.  R  L. 
(1905)  s.  c.  1794  7:  O.  Bates  A.  H.  (liH)S)  sec.  3631-11:  Okla.  Wilson  A.  S. 
(1903).  sec.  .32.it5:  Pa.  Ins.  Law  (1905)  v.  76:  So.  Car.C.  C.  (liH>2).  sec.  ia30:  So. 
I>a.  C.  C.  (1!Ht8)  sec.  72a:  Tenn.  L.  of  ISHfi.  c.  4«0:  Te.x.  L.  of  18«».c.  115:  Va.  L. 
of  UHW.  p.  152:  rtah.  St.  (1903).  sec.  418:  Wa.sh.  L.  of  19a3.  p.  145.  sec.  1:  Wy. 
L.  of  liHM.  c.  51. 

•  Coole.v— Bri(>fson  Tnsurani-e  Law,  v.  1,  pp.  .54-.55. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  21 

against  unexpected  losses  and  expenses.'  Mr.  Miles  M. 
Dawson,  an  eminent  New  York  actuary,  explains  the 
necefisity  for  these  reserves  in  the  following  terms:.  "A 
level  premium,  to  cover  an  increasing  hazard,  converging 
into  certainty  of  loss,  as  does  a  whole  life  premium,  calls 
for  an  accumulation  of  the  excess  of  the  premium  over  the 
current  cost  during  the  earlier  years,  the  drawing  back 
from  this  accumulation  and  its  interest  during  the  later 
years  and  the  final  application  of  the  entire  fund  toward 
paying  the  insui-ed's  own  claim  whenever  his  death  takes 
place."'  lleserves  thus  set  aside  constitute  the  distin- 
guishing characteristic  of  level  premium  insurance.'^ 
Practically  all  stock  companies  and  such  mutual  companies 
as  provide  in  their  policies  for  the  payment  of  fixed  pre- 
miums contract  insurance  on  the  level  premium  plan  and 
are  designated  as  "level  premium"  or  "old  line"  com- 
panies. 

Mutual  Benefit  Association.  Assessment  or  co-opera- 
tive companies  and  fraternal  beneficiary  associations  are 
usually  classified  hy  the  courts  as  Mutual  Benefit  Associa- 
tions because  they  are  both  organized  for  the  sole  benefit 
of  the  members  and  not  for  profit.  Strictly  speaking 
these  two  classes  of  companies,  frequently  known  as 
Mutual  Benefit  Associations,  are  the  ones  which  do  a 
purely  assessment  insurance  business  and  therefore  are  com- 
monly designated  as  "assessment  companies."  The  term 
"Mutual  Benefit  Associations"  may  be  said  therefore  to  be 
the  more  general  term  used  by  the  courts  to  include  the  two 


'  Dawson  —Business  of  Life  Insurance,  p.  39.  In  connection  witli  the  sub- 
ject of  level  premium  and  assessment  Insurance  a  careful  study  of  chaj)ters 
3,  4  and  5  in  Dawson's  Business  of  Life  Insurance  will  he  found  helpful. 

'  Dawson— Business  of  Life  Insurance,  p.  38. 

^  Dawson— Assessment  of  Life  Insurance,  pp.  7  and  8. 


22  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

forms  of  organization  which  do  a  particular  kind  of  business 
but  not  to  designate  a  particular  form  of  organization  in  it- 
self.' 

Asaessment  Comjtanies.  Assessment  insurance  is  that 
insurance  which  is  provided  from  funds  derived  from  as- 
sessments or  periodical  calls  levied  to  cover  a  particular 
loss  or  the  losses  and  expenses  of  a  particular  term.  The 
predominant  and  distinguishing  feature  of  all  mutual  benefit 
associations  is  that  the  payment  of  losses  by  death  or  in- 
jury is  not  by  a  fixed  premium  payable  in  advance,  as  in 
the  cas9  of  ordinary  insurance  companies,  nor  by  deposit 
notes,  as  in  the  case  of  mutual  companies,  but  by  post 
mortem  assessments,  intended  to  licjuidate  specific  losses, 
and  levied  only  on.  surviving  members."'  It  is  customarj', 
however,  among  most  assessment  companies  to  charge  an 
anticipated  assessment  in  the  nature  of  a  more  or  less  regu- 
lar premium  but  on  the  condition  that  an  additional  assess- 
ment may  be  charged  in  case  of  a  deficit.  The  character 
of  an  assessment  or  co-operative  company  is  not  affected 
by  the  fact  that  it  may  have  established  and  maintains  an 
emergency  or  guaranty  fund  to  insure  the  prompt  payment 
of  its  losses.* 

Kinds  of  Insurance 

From  the  standpoint  of  legal  responsibility  for  protec- 
tection  against  accidents,  there  are  two  general  kinds  of 
insurance,  viz.,  voluntary  and  compulsory. 

VohntUiry.  When  insurance  against  accident  is  pro- 
vided in  the  absence  of  legal  obligation  to  do  so,  it  is  said 
to  be  voluntary  insurance.     If  such  insurance  is  provided 


•  Cooley— Briefs  on  Ins.  Law,  v.  1.  d.  54. 

*  Cooley— Briefs  on  In.s.  Law,  v.  1,  p.  54. 
'  Cooley— Briefs  on  Ins.  Law,  v.  1.  p.  55. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  23 

by  the  workman  himself,  it  takes  the  form  of  personal  ac- 
cident insurance;  but  if  it  is  provided  by  the  employer  for 
himself  it  is  liability  insurance,  or  if,  for  his  workmen, 
then  it  is  collective  insurance.  Throuj?hout  all  of  the 
United  States  and  in  Denmark,  France,  Great  Britain,, 
Greece,  Russia,  Spain  and  Sweden,  insurance  is  volun- 
tary.' 

Compulsory.  Compulsory  insurance  is  such  insurance 
against  accidents  as  is  required  by  law.  It  is  collective 
in  form  and  is  usually  provided  from  funds  to  which  both 
employers  and  employees  contribute.  Insurance  against 
accident  is  compulsory  in  Austria,  Belgium,  Finland,  Ger- 
many, Italy,  Netherlands  and  Norway.^ 

Distinction  between  Compulsory  Insurance  and  State 
Insurance.  State  insurance  is  insurance  which  is  pro- 
vided in  a  fund  created  by  the  state  and  managed  by  state- 
officials,  but  compulsory  insurance  is  that  insurance  which 
is  provided  as  the  result  of  legal  requirement  and  may  be- 
secured  in  either  a  state  fund  or  in  the  funds  of  incorpor- 
ated companies.^  Compulsory  insurance,  therefore,  is  not 
state  insurance,  but  may  be  insurance  required  by  law  ia 
incorporated  companies.  The  accident  insurance  of  Ger- 
many and  Austria  is  compulsory  insurance,  but  not  state 
insurance.  All  accident  insurance  carried  in  the  Insurance 
Department  of  New  Zealand  is  state  insurance,  but  not 
compulsory  insurance.  A  quotation  from  the  explanation 
of  the  German  Workmen's  Insurance  at  the  Louisiana 
Purchase  Exposition  in  1904  by  Dr.  Ludwig  Lass  will 
illustrate  this  principle:     ^'According  to  the  German  sys- 


»  Bulletin  No.  34.  p.  3t50  (Chart)  N.  V.  Bur.  of  Lalwr.    (1907) 
'  Bulletin  No.  34.  p.  Wd  (Chart)  N.  V.  Bur.  of  LalK)r.    (1907) 
'  Contrast  Aocideut  In.suranceLaws  of  Now  Zealand  (t>3  Vict.  No.  20, 18519) 
with  Accident  Insurance  Laws  of  Austria  and  (Jermany. 


24  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

system  the  productive  classes,  employers  and  employees, 
are — by  means  of  corporate  self-administration — exercising 
Rocial  self-help  organized  on  the  basis  of  regulations  bear- 
ing the  character  of  public  law.  Coti»<ti>iintlij  irv  hove 
not  in  Germany,  as  is  often  erroneously  thought  abroad, 
an  insurance  by  the  state,  hut  an  insurance  by  the  Inter- 
ested part  iex  thr/nseh'es,  tlirontjh  the  nietlinni  of  r I tal  cor- 
porations,* which  are  standing  between  the  state  and  the 
individual  and  which  are  charged  with  the  execution  of 
the  insurance."' 

Insurance  on  Life 

The  different  kinds  of  insurance  on  human  life  have  l)een 
classified  according  to  the  circumstances  which  make  a 
benefit  payable  as  life  insurance,  accident  insurance  and 
health  insurance. 

Life  Insurance.  J^ife  insurance  is  that  kind  of  insur- 
ance which  involves  the  i)ayment  of  money  or  other  thing 
of  value  to  families  or  representatives  of  policy  holders, 
conditioned  upon  the  continuance  or  cessation  of  human 
life,  or  involving  an  insurance,  guaranty,  contract,  or 
pledge  for  the  payment  of  endowments  or  annuities.'' 

Industrial  Insurance.  A  kind  of  insurance  has  grown 
up  in  the  United  States  and  England  in  the  past  fifty  years, 
as  a  branch  of  general  life  insurance,  which  is  known  as 
industrial  life  insurance,  because  of  its  peculiar  nature  and 
methods  of  business.  When  defined  in  the  statutes  the 
term  industrial  life  insurance  is  generallj'  used  to  mean 
that  insurance  for  which  the  level  premiums  are  regularly 


•The  Italicx  do  not  apiK-ar  in  the  oiitriiial  copy. 
'  Lass — (ierman  Workmen's  Insurance,  pt.  1,  p.  15. 
'Statutes of  Te.xas.  lS97-Art.  •Jtmn. 


r 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  25 

payable  and  collectable  weekly  or  bl-vveekly,  and  the  poli- 
cies or  benefit  certificates  are  for  sums  of  not  more  than 
five  hundred  dollars  on  a  single  life  and  may  provide  a 
weekly  benefit  for  disability  caused  by  sickness  or  accident 
not  greater  than  twenty  dollars  per  week.'  Industrial  in- 
surance is  accident  and  health  insurance  adapted  to  the 
special  needs  of  workingmen  on  which  the  premiums  are 
collected  at  frequent  intervals.  When  used  in  this  sense 
the  term  industrial  insurance""  is  to  be  distinguished  from 
the  same  term  which  is  fre(iuently  used  to  mean  industrial 
life  insurance. 

Acriihnt  Ii(siiraiicr  Accident  insurance  is  that  insur- 
ance which  involves  the  payment  of  money,  or  other  thing 
of  value  to  families  or  other  designated  beneficiary  of  policy 
holders,  conditioned  upon  the  injury,  disablement  or  death 
of  the  person  insured  resulting  from  travel  or  general  acci- 
dents by  land  or  water.  In  general  this  includes  all  per- 
sonal injuries  of  whatever  nature  resulting  from  external, 
violent  and  accidental  causes,  and  differs  from  life  insur- 
ance only  in  that  a  policy  claim  accrues  from  a  more  limit- 
ed number  of  causes.''  In  certain  instances  of  accident 
insurance  for  workingmen  the  benefit  may  become  payable 
only  as  the  result  of  accidents  whicii  occur  in  tlie  course 
of  employment. 

Ilciilth  Inxurdiire.  Health  insurance  is  indemnity  for 
loss  on  account  of  sickness.'  Closely  allied  to  health  in- 
surance is  the  indemnity  for  old  age  which  is  provided  for 
by  many  mutual  benefit  associations.* 


'Laws  of  (ia.    ISIir),  c.  5!);  Mo.  Stat.  (liHUO.  sec.  rs>4:!. 

"^  Cf.  Statutes  of  Tt-xas.  is;)7.  Art  3U>a.  The  Kidelit.v  &  Casualty  Co. 
of  N.  V.    Its  Histor.v.  Siaiidiiisr.  and  Business  Methods.  1905.  u.  10. 

'  Coolo.v  "Briefs  on  Ins.  Law.  v.  1.  p.  5.- 

*  Cf.  Statutesof  .\rk.  KirUy's  Dlire-it.  (liWt)  se-.  4351:  Til.  U.  S.  (1005) 
<•.  7H.  seo.  2.i8:  Nel)r.  Col)l)ey'sG.  L.  liX)"  sec.  l)03t>:  and  definitions  of  fra- 
ternal l>eneflciary  associations  citiitions  for  wliicli  are  triven  on  |):i>re  19. 


26  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

Peimion^ — Annidtlt'* — Iit'lcmnitieii..  In  the  current 
discussions  of  insurance  for  workingmen  the  term  'pension" 
"annuity"  and  "indemnity"  are  frequently  used  in  the  same 
sense  and  when  so  used  they  severally  mean  the  payment 
of  fixed  amounts  to  a  beceficiary  throughout  a  period  of 
years  instead  of  one  lump  sum  when  the  policy  becomes  a 
claim.  The  paj'ments  may  be  made  weekly,  monthly, 
quarterly  or  semiannually  as  may  be  agreed  upon  as  well 
as  annually.  This  meaning  is  not  in  strict  accord  with  the 
technical  definitions  of  these  terms.' 

Policies 

An  insurance  policy  is  a  contract  in  which  it  is  agreed 
that  the  occurrence  of  particular  circumstances  or  events 
shall  make  a  benefit  payable.  Policies  may  be  classified 
according  to  the  nature  of  the  agreement  made  as  personal 
accident,  employers'  liability  or  workmen's  collective  poli- 
cies. 

Personal  Accident.  A  personal  accident  policy  is  one 
which  covers  the  individual  against  accidents  happening- 
to  himself.^ 

Employers'  TAahility.  An  employer's  liability  policy 
is  one  which  insures  an  employer  against  claims  that  may 
be  made  upon  him  because  of  injuries  suffered  by  his  em- 
ployees and  for  which  he  may  be  liable  by  reason  of  some 
act  or  default.*  It  relates  to  a  class  of  personal  injuries 
for  which  some  one  other  than  the  injured  person  is  re- 
sponsible, and  who  is  legally  bound  to  make  compensation 
for  the  loss  sustained.* 


'  For  ail  lllii-itration  of  mo  above  referred  to  see  Willoughby— Work- 
Intrmen's  Insurance,  pp.  70.71  and  104. 

'cf.  The  Fidelity  &  Casualty  Co.— Its  History,  Standing  and  Business 
Methods  -11) J5.  i).  1:;. 

'  The  Fidelity  &  Casualty  Cx— Its  History,  Standing  and  Business  Meth- 
ods-1905,  p.  12. 

*  Dunham.  Yale  Insurance  Lectures,  v.  2,  p.  236. 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  27 

Workmen!' s  Collective.  A  workmen's  collective  policy 
is  one  which  includes  all  the  employees  of  a  fiirm  or  cor- 
poration in  a  single  contract  and  insures  them  against  loss 
by  reason  of  accident  or  accident  and  sickness.  "Work- 
men's collective  insurance  is  wholesale  insurance,  the 
policy  running  to  the  employer,  and  the  protection  there- 
under to  the  workmen  whether  the  employer  be  legally 
liable  or  not."  The  premium  for  this  class  of  policies  is 
based  on  the  number  of  employees,  the  hazard  of  the  oc- 
cupation and  the  amount  of  wages,'  and  is  usually  paid  by 
the  employer,  though  he  may  share  it  with  his  workmen 
by  deductions  from  their  wages. 

Funds 

In  general  all  that  part  of  the  income  of  an  insurance 
company  which  is  not  used  to  meet  current  losses  and  ex- 
penses is  credited,  according  to  well  established  principles 
of  business,  to  one  or  more  of  the  reserve  funds  whence  it 
becomes  a  liability  of  the  company  and  is  invested  accord- 
ing to  law  for  the  securitj^  of  policy  holders.  The  reserve 
funds  to  which  it  may  be  credited  have  been  named  ac- 
cording to  the  purpose  which  they  serve.  The  remainder 
of  the  income  after  these  reserves  have  been  sat  aside  con- 
stitutes profits. 

Reinsurance  Reserve.  Theoretically  a  reinsuraace  re- 
serve is  a  fund  set  aside  from  premiums  collected  sufficient 
in  amount  to  enable  a  company  to  transfer  or  reinsure  all 
its  outstanding,  unexpired  risks  in  some  other  solvent  com- 
pany or  to  settle  the  claims  that  become  payable  thereon 
as  they  arise, ^  Such  a  reserve  can  be  computed  according 
to  scientific  principles  and  is  required  by  law  to  be  main- 


'  Henderson— Industrial  Insurance,  p.  177. 
*  Dunham — Yale  Insurance  Lectures,  p.  222. 


28  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

tainod  by  all  Icfjal  reserve  or  level  premium  companies. 
It  has  been  judicially  described  as  a  fund  which  must  be 
equal  in  amount  at  all  times  to  the  aggregate  policy  lia- 
bilities at  their  then  present  value.  It  is  created  to  secure 
these  liabilities,  and  is  from  that  circumstance  impressed 
in  a  certain  sense  with  an  equity  in  favor  of  the  holders 
of  policies.'  This  fund  is  also  known  as  the  'premium 
reserve." 

Liability  Meserve.  The  liability  reserve  is  a  special 
fund  which  employers'  liability  companies  are  recpiired  by 
law  in  some  states  to  set  aside  as  security  for  obligations 
accrued  but  unpaid."     These  claims  accumulate  because  of 


>  New  Haven  Trust  Co.  v.  (iaffney.  47  All.  7(W:  73  Co:in.  4vS0. 

'  The  technical  statement  of  the  rule  for  computing  this  reserve  as  it  ap- 
pears in  the  Mew  York  Statutes  is  as  follows:  (Revised  Statutes  and 
General  Laws.  v.  4.  Sup.  p.  42ii):  In  estimatinff  the  condition  of  any  casu- 
alty insurance  corporation.  un<ler  tlie  provisions  f  this  chapter,  the  super- 
intendent shall  allow  as  assets  onlysudi  investments  as  are  authorized  l>y 
the  e.Niirtinff  lawsof  tliis  slate,  at  the  date  of  its  investigation:  and  shall 
charjie  as  lialiilities,  in  addition  to  the  capital  sttx-k.  all  out  tandinjr  in- 
debtedness of  the  corijoration.  and  the  premium  reserve  on  i)olii"ies  In 
force,  euual  to  the  unearned  portions  of  the  gross  premiums  cliar^ed  for 
coverintr  the  risks,  computed  on  each  respective  risk  fiom  the  <late  of  the 
issuance  of  the  i)olicy.  There  shall  also  Ije  chariretl  as  a  liability  to  each 
compan.v  which  undertakes  or  writes  insurance  under  suixlivisi  )ii  three 
of  section  sevent.v  of  this  act.  whether  ortrani/ed  under  this  or  any  other 
state  or  country,  a  further  reserve  as  hereinalter  provided.  For  thepur- 
ix)se  of  compiitiiiK'  said  reserve,  each  such  company  which  has  l)een  en- 
gaged in  liaV)ility  underwriting  for  ten  years  or  more,  shall,  on  or  liefore 
tlie  first  day  of  Octo))er  in  each  .year,  state  in  writing  to  tlie  sui)erintendent 
of  insurance  its  e.xperience  in  the  Tnited  States,  uncier  a  1  forms  of  liat>il- 
ity  policies,  each  year  separately  accoiding  to  the  calendar  .years  in  which 
tin-  iKjIicies  were  written,  during  a  iH>riod  of  five  years  commencing  ten 
years  previous  to  tlie  thirty-first  da.v  of  December  of  the  year  in  whi<rii  the 
statement  is  made,  in  the  following  particulars,  namely:  The  number  of 
persons  reported  injured  undei-  all  of  the  forms  of  liability  policies  whether 
such  injuries  were  i-eiwrted  to  the  liome  office  of  the  given  company  or  to 
an.v  of  its  repres«'ntatives:  the  amount  of  all  payments  made  on  account  or 
in  conse(iuence  of  injuries  reported  under  such  ixjlicies;  thenumtier  and 
amount,  separately,  of  al  suits  or  actions  against  ix)licy  holders  under 
such  policies  which  have  been  sett  ed.  either  b.v  i>ayment  or  compromise: 
both  of  the  al)ove  amounts  to  be  ascertained  as  of  date  of  the  thirty-first 
day  of  .\ugust  of  the  year  in  which  tin-  statement  is  made,  and  to  include 
in  the  case  of  suits  all  payments  made  on  account  or  in  <'onse(iuence  of  the 
injur.v  fn)m  which  the  suit  arose,  wliether  prior  to  or  later  than  the  date 
at  which  the  suit  was  brought.  Each  sui-h  compan,v  shall  thereupon  reserve 
uiKjn  all  said  kind  of  policies,  irrespective  of  the  date  at  whii-ii  the  policies 
were  issued  (1)  for  each  suit  or  action  ix>nding,  on  injuries  reiwrted  prior  to 
eighte«'n  months  previous  to  the  date  of  making  the  statement,  whether 
such  injuries  were  reported  to  the  home  office  of  the  given  company  or  to 
any  of  Its  repiesentatlves,  and  which  is  Ix'ing  defended  for  or  on  account 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  29 

the  time  required  for  adjustment  and  settlement  or  for 
litiffation  and  they  are  no  longer  protected  by  premium 
reserve  because  the  insurance  is  not  in  force,  since  the 
policy  becomes  a  claim  against  the  company  as  soon  as  the 
injury  occurs,' 

Continyency  lieserve  or  /Surplttfi.  A  contingency  re- 
serve or  surplus  is  a  fund  which  is  set  aside  after  the  re- 
insurance reserve  has  been  provided  for  to  meet  unex- 
pected losses  and  expenses.^  The  reinsurance  reserve  is 
computed  on  the  basis  of  experience  for  a  period  of  years. 
It  is,  therefore,  based  on  averages,  and  in  normal  con- 
ditions a  company  would  be  financially  sound  with  no 
other  reserve  than  its  reinsurance  reserve.     But  in  order 


of  the  holder  of  any  such  policy  the  avorasfe  cost  thereof  as  shown  by  said 
exuerienoe.  and  (2)  for  injuries  reuoried  under  such  policies  at  any  time 
withineitrhtecn  months,  whether  such  injuries  were  reported  to  the  homeof- 
■fice  of  the  triven  company  or  to  any  of  its  representatives.  I  he  averairecost  for 
each  injured  penson  as  shown  by  said  experiem-e.  From  the  sinn  so  ascer- 
tained the  company  may  dedu  -t  the  amount  of  all  payments  made  on  ac- 
count or  in  consequence  of  said  injuries  reporte  i  within  eiirhteen  months, 
this  amount  to  be  taken  as  of  the  date  at  whith  thi>  statement  is  made. 
Any  company  which  now  issues,  or  shall  hereafter  iss  e.  liabilit.y  policies 
as  aforesaid,  and  which  has  not  been  enjraged  in  liabilit.y  underwriiinir  for 
ten  .years,  -hall  nevertheless,  until  such  times  as  it  ma.y  be  liable  to  state  its 
experience  of  the  period  hereinbefore  required,  make  and  maintain  a  re- 
serve upon  all  said  kind  of  policies,  irresiiective  of  the  date  at  which  the 
policies  were  issued,  determined  as  follows:  (1)  for  each  suit  or  action 
pendinjf.on  injuries  reported  prior  to  eighteen  months  i)revious  to  i  lie  date  of 
niakin}?  the  statement,  whether  such  injuries  were  reported  tothe  home  of- 
fice of  the  griven  company  or  to  any  of  its  representatives,  and  which  is 
beinsr  defended  for  or  on  account  of  the  holder  of  any  such  policy  the  aver- 
age cost  tlu'reof  as  shown  1  .v  the  average  of  said  experience  of  all  other 
companies  stated  as  required  by  this  secti.  n.  and  (2)  for  injuries  reported 
under  such  jxillcles  at  an.v  time  within  eitrhteen  months,  whether  such  In- 
juries were  reported  tothe  home  olflce  of  the  driven  company  or  to  any  of 
its  representatives,  the  average  cost  f' r  each  injured  i)erson  as  shown  by 
the  averajre  of  said  experience  of  all  other  companies  stated  as  re  luli-ed 
i)y  this  section:  which  averaife  costs  for  suits  and  for  Injured  person  shall 
be  furnlshei  by  the  superintendent  of  insurance  to  each  sUch  company  on 
or  t  »>fore  the  first  day  of  December,  in  each  .year.  From  the  sum  so  ascer- 
tained each  such  company  may  deduct  the'amount  of  all  payments  madeon 
account  or  in  consequence  of  said  injuries  reported  within  eighteen 
months,  this  amount  to  be  taken  as  of  the  date  at  which  the  statement  is 
made. 

For  other  statements  of  the  rule  l).v  which  this  reserve  is  computed  con- 
sult Ala.  C.  C.  (ltH)7).  sec.  4555:  Cal.  L.  of  liXXi,  Ex.  Se.ss.  c.  119,  sec.  (J02a; 
Conn.  L.  of  ltX)5.  c.  272:  111.  L.  of  190.5.  p.  28S,  .sec.  12a;  Mass.  L.  of  1907.  c.  576, 
sec.  11:  Mi<'h.  [ns.  Law.  (1907)  sec.  420. 

'  Dunham.    Yale  insurance  Lectures,  p.  245. 

*  Dunham— Yale  Insurance  Lectures,  p.  223. 


30  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

to  guard  against  exceptional  losses,  some  companies  set 
aside  a  special  fund  before  distributing  profits,  which  is 
known  as  the  contingency  reserve  or  surplus.  This  re- 
serve is  not  required  b,v  law  but  it  is  maintained  by  every 
oonservative  company  as  a  safeguard  against  emergency. 

Reserve  or  Kmerifenaj  Vtntd».  Reserve  or  emergency 
funds  is  the  term  applied  to  funds  set  aside  by  mutual 
benefit  societies  in  order  to  enable  prompt  payment  of  i)ol- 
icy  claims  in  lieu  of  an  assessment.  They  are  required 
by  law  in  sume  states  to  be  maintained  by  this  class  of 
companies;  in  other  states  their  maintenance  is  i)erraissible 
but  not  obligatory.' 

Pi'd^pts.  "Profits"  is  a  term  applied  in  the  statutes  of 
a  number  of  states  to  that  portion  of  the  funds  of  an  in- 
surance company  not  required  for  the  payment  of  losses 
and  expenses,  nor  set  apart  for  any  other  purposes  allowed 
by  law."  The  term  "i)rofits"  represents  a  definite  concept 
in  insurance  law,  for  a  large  number  of  states  specify  that 
dividends  may  be  declared  only  from  profits,  and  that 
these  profits  must  be  estimated  according  to  statutory 
rule. 


'  Citations  to  statutes  ill  wliich  tin-  term  reserve  or  emertrency  funds  is 
used  will  be  found  under  tile  head  of  reserves  for  Assessment  Companies 
and  fraternal  Vx'iiefiriary  associations,  pp.  40  and  44. 

'  Typii-al  definitions  will  be  found  in  the  followin»r  citations:  cf.  Laws 
of  Colo.  190'i.  eh.  193,  sec.  5S»;  Laws  of  Ma.ss.  1907.  ch.  57C.  sec.  1;  Laws  of 
Minn.  1907,  ch.  321.  sec.  1;  R.  S.  of  Te.xas  1897  Art.  3090a. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  31 


ANALYSIS  OF  BUSINESS  METHODS 


Stock  Companies 

Incorporation.  Any  number  of  i)ersons,  though  usually 
not  less  than  three  or  live  may  form  an  insurance  corpora- 
tion under  general  law  on  the  stock  plan.  The  usual  re- 
quirements for  this  class  of  corporations  are  that  a  certi- 
fied statement  including  the  name  of  the  proposed  corpor- 
ation, the  names  of  its  incorporators  who  must  be  stock- 
holders, its  by-laws,  the  particular  kind  of  insurance  to  be 
transacted  and  the  amount  of  capital  stock,  must  be  tiled 
with  the  insurance  commissioner  or  the  secretary  of  state. 
When  the  capital  stock  or  such  a  portion  of  it  as  is  re- 
quired by  law,  has  been  paid  in  and  do  posited  with  the 
state  treasurer  or  insurance  commissioner  if  such  deposit 
is  required  and  the  insurance  commissioner  is  satisfied  that 
the  proposed  corporation  has  complied  with  the  law  in  all 
other  respects,  a  license  is  granted  and  the  new  corpora- 
tion may  issue  policies. 

For  companies  which  transact  a  general  accident  or  em- 
ployers liability  business  the  amount  of  capital  stock  re- 
quired is  $100,000  in  32  respective  states.'    Florida,  Indi- 

•  For  jreiieral  provisions  relatiiitr  to  capital  and  Incorporation  see  Ala. 
C.  C.  (UWD  sec.  35*53:  Ariz.  li.  S.  (1901)  sec.  784:  Ark.  Kirby's  cli»rest.  U9»M) 
sec.  4335:  Cal.  C.  C.  (liK«)  sec.  420.  L  of  UKKi.  c.  1U»:  Colo.  L.  of  1!I07,  c.  WA 
sec.  25;  Del.  Laws,  v.  22  c.  99.  sec.  4:  Ga.  Ins.  Law  (1905).  p.  8:  III.  K.  t*.  (m>5) 
c.  73se<-.  212:  Ind.  Burns  K.  S.  (1908)  sec.  47rt9:  Kas.  (i.  S.  (1905)  sec.  :i520:  Ky. 
St.  (1903)  sec.  646:    La.  U.  L.  (Iit04)  p.  »44:    Mo.  K.  S.  (1«H)3)  p.  479;    Md.    «.   L. 


32  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

ana,  Iowa,  Kentucky,  Mississippi  and  North  Carolina  per- 
mit the  organization  of  accident  companies  with  a  cai>ital 
stock  of  ^50,000.'  In  man  J-  states  the  capital  must  l)e 
fully  paid  in  in  cash  before  the  companj'  may  issue  i)olicie8. 
In  others  the  company  may  begin  business  when  one-half 
or  even  one-fourth  of  the  capital  has  been  paid  in  but  is 
required  to  have  the  balance  fully  paid  up  within  one  year, 
otherwise  the  directors  become  personally-  liable  for  losses 
on  new  policies  written  after  that  time.  The  capital  stock 
is  invested  in  interest  bearing  securities  and  deposited  with 
a  state  official  or  held  in  trust  bj-  the  treasurer  of  the  com- 
pany as  a  guaranty  for  the  payment  of  policj'  claims  and 
is  only,  to  ba  resorted  to  when  the  premiums  received  and 
the  other  income  of  the  company  are  insufficient.^ 

JJiftjn}Kiii(t/i  of  Tnroinf.  The  income  of  a  stock  cora- 
pan^'  consists  chiefly  of  premiums  and  interest  on  invest- 
ments. In  the  beginning  the  principal  part  of  the  income 
is  premium  payments  but  since  nearly  all  stock  companies 
adopt  the  legal  reserve  or  level  premium  plan,  the  interest 
from  the  investment  of  reserve  funds  becomes  a  factor  of 
increasing  importance.  This  income  for  any  particular 
year  may  be  considered  as  constituting  one  concrete  cash 
fund  which  is  disposed  of  by  the  officials  of  the  company 
according  to  fixed  principles  of  law  and  business.  Part 
of  it  must  be  used  to  pay  losses  on  policies  as  they  accrue; 


(1904)  p.  504:. Mass.  L.  of  1907.  f.  576,  se.-.  3?;  Mich.  Ins.  Law  (1907)  sec.  13-16; 
Mo.  HI.  (ISHXi)  se«-.  7{»7:  Mont.  C.  C.  (1895)  sec.  tSS'i:  Xehr.  Ckjbbey's  (J.  L. 
(1907)  seo.  tm7  and  t>419:  N.  .1.  L.  of  1907.  c.  158  and  c.  73:  X.  Me.\.  (i.  L.  (1897) 
sec.  2095:  N.  V.  R.  S.  and  (i.  I-.  (1901)  v.  2.  p.  1823:  N.  I).  C.  C.  (m)5)  sec.  4429: 
O.  Bates.  .\.  S.  sec.  3591-2-3:  Ore.  St.  (U103^  sec.  3710:  Pa.  L.  of  1905.  pp.  24  and 
46:  So.  Da.  ('.  C.  (1908)  sec.  687  and  690:  Tenn.  Laws  of  1907.  c.  450:  Tex.  R. 
S.  (1897)  .\rt.  aOiVid:  Ftah  St.  (1907)  sec.  403:  Va.  Laws  of  15>08.  c.  234:  Wash. 
Laws  of  18St5.  p.  I.J9.  sec.  20:  W.  Va.  Laws  of  1907.  c.  77.  .sec.  61:  Wis.  St.  (1898) 
sec.  IS>47a:  Wy.  L.  of  1903.  c.  108. 

'  Fla.  (i.  S.  (1906)  .sec.  2756:  Ind.  Burns  .\.  S.  (190S)  sec.  4«Wl-2:  'la.  Code 
(1897)  s«H'.  lti!»l:  Ky.  St.  (1903)  se<-.  682  and  L.  of  1908.  c.  6:  Miss.  R.  L.  (1906) 
sect  ions  2582-3:  No.  Car.  R.  L.  (1905)  se<-.  4727-9. 

»  22.  CYC   1.3!»S. 


ACCIDENT  INSURANCE  FOR  WOREINGMEN  33 

another  part  goes  to  pay  current  expenses  which  consist 
chiefly  of  commissions  to  agents,  license  fees,  taxes,  and 
incidentals;  other  parte  are  distributed  to  the  reserve  funds 
which  are  required  by  law  or  are  kept  voluntarily  by  the 
company  as  a  matter  of  sound  financial  policy;  and  if  any 
part  is  left  it  constitutes  profits  which  may  be  distributed 
to  the  stockholders  as  dividends. 

lie-insurance  lieserve.  After  paying  cuiTent  losses  and 
expenses  out  of  the  cash  funds,  the  re-insurance  re- 
serve is  the  one  which  demands  immediate  attention.  All 
level-premium  companies  are  legally  bound  to  maintain 
this  fund  becauss  the  premium  is  collected  in  advance  to 
pay  for  insurance  throughout  a  period  of  perhaps  a  year.  If 
all  of  the  funds  were  used  immediately  without  regard  to 
the  future,  the  company  might  find  itself  quite  helpless  at 
the  latter  end  of  the  year  when  some  of  the  policies  for 
which  it  bad  been  paid  in  the  beginning  began  to  accrue. 
The  rule  fixed  in  the  statutes  of  many  states  for  comput- 
ing this  reserve  is  to  set  aside  for  this  purpose  fifty  per 
cent  of  the  gross  premium  income  on  all  policies  having 
one  year  to  run;  and  a  pro  rata  share  of  the  gross  premi- 
ums received  for  all  those  having  more  than  one  year  to 
run.'  The  foregoing  rule  applies  usually  to  accident  and  em- 
ployers liability  companies,  as  well  as  some  others  though 
the  per  cent,  of  premiums  used  is  forty  in  some  states  in- 
stead of  fifty."     The  part  thus  reserved  is  arbitrarily  de- 


»  cf.  statutes  jvud  laws,  Ala.  C.  C.  (1907).  sec.  4r.55:  Colo.  L.  of  1907.  c.  193. 
sec.  35:  Comi.  L.  of  1905.  c.  272:  111.  L.  of  ISWo.  u.  288,  sec.  12a:  .sy.  St.  (1903) 
sec.  6iKi  and  I5!t2:  Mass.  L.  of  liW.  c.  576,  sec.  11;  Mich.  Ins.  Law  (1907)  sec. 
42t):  Minn.  L.  of  1907.  c.  321:  Miss.  Code.  (ll'Oli)  .sec.  2013:  Mont.  C.  C.  (1895). 
sec.  000,  par.  0;  N.  Mex.  Com.  Laws.  (1S9r).  .sec.  2Ui9:  N.  Y.  R.  S.  &  (i.  L. 
(1901).  vol.  2.  p.  1851:  No.  Car.  R.  L.  (1905).  sec.  +704:  Tenn.  Code  (1896).  sec. 
32iK):  Tex.  R.  S.  (1897).  Art.  30.50,  par.  11:  Vt.  L.  of  1S»02,  c.  76;  Wis.  St.  (1898), 
sec.  lSttH5— 44;  W.  Va.  L.  of  1907,  C.  77.  sec.  01 :  Wy.  L.  of  1907,  c.  98. 

"cf.  la.  Code,  (18!»7),  sec.  1702;  Kas.  G.  S.  (1!H)5).  sec.  3.531;  Nebr.  Cobhey's 
G.  L.  (1907).  sec.  IM31:  N.  I).  C.  C.  (11H)5).  .sec.  4427;  Wash.  L.  of  1895,  p.  159 sec. 
23. 

3 


34  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

clared  by  statute  to  be  the  unearned  premium;  and  is  sup- 
posed to  represent  that  portion  of  the  premiums  collected 
which  corresi)ond8  to  the  unexpired  portions  of  the  poli- 
cies in  force.'  This  fund  is  invested  in  interest  bearing 
securities  and  is  drawn  upf>n  to  meet  policy  claims  only 
when  the  cash  funds  are  exhausted. 

OtJur  JietiPrves  and  J*rop'tti.  If  the  company  maintains 
a  contingency  reserve  or  surplus  a  certain  percentage  of 
the  income  will  then  be  credited  to  this  fund,  unless  the 
company  transacts  employers'  liability  insurance.  In  that 
event  it  is  refjuired  by  law  to  provide  for  its  liability-  re- 
serve according  to  the  method  described  under  that  title 
in  a  preceding  section  before  setting  aside  anj'  other 
funds.  Whatever  is  left,  if  anything,  after  retaining  cash 
enough  to  cover  all  claims  due  and  unpaid  and  all  interest 
or  other  account^i  payable  to  the  company  but  not  settled, 
constitutes  i)rotits  which  may  be  distri'^uted  to  the  stock- 
holders as  dividends  by  order  of  the  board  of  directors. 
The  statutes  of  practically  all  the  states  specify  that  divi- 
dends shall  not  be  declared  except  from  surplus  profits 
and  that  in  estimating  such  profits  the  reinsurance  reserve 
and  cash  funds  enough  to  cover  all  unpaid  claims  and  all 
interest  and  other  accounts  i)ayable  to  the  company  but 
still  unsettled  must  be  counted  as  liabilities. ■* 

Capital  Impaired — Hair  Made  (itutd.  If,  after  bal- 
ancing the  accounts  of  a  company  according  to  the  prin- 
<!iples  previously  set  forth,  it  is  found  that  the  liabilities 
exceed  the  assets,  exclusive  of  the  capital  account,  to  the 


'  See  also  Dawson,  Elements  of  Life  Insuianee,  u.  84. 

'For  illustration  of  this  point,  cf.  ("al.  C.  C.  (1906)  sec.  429:  La.  R.  L. 
(IJKM)  D.  H4<»:  Mfl.  (i.  L.  (1904)  Art.  2.1,  .sec.  IW:  Mass.  L.  of  1907.  C.  576.  sec.  11: 
Minn.  R.  L.  (190."i)  sec.  1639:  MLss.  Code  (1!KW)  sec.  25>7:  Mo.  A.  S.  (1906)  sec. 
7881-2:  also  s«'c.  8011:  No.  Car.  R.  L.  (l!>05)  soc.  4736:  ().  Bates  A.  S.  (1908) 
sec.  3602:  Tex.  R.  S.  (1897)  Art.  3050,  par.  11 :  also  Art.  30<.»6<i;  Tenn.  Code  (IS9o> 

•SOC*  Axil', 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  35 

extent  of  twenty  per  cent  in  some  states,  twenty-five  in 
others,  the  capital  is  said  to  have  been  impaired.  In  that 
event  the  directors  are  required  to  make  good  this  impair- 
ment within  sixty  or  ninety  days  by  an  assessment  upon 
the  stockholders  or  show  cause  why  the  company  should 
not  be  dissolved.  Shares  of  stock,  on  which  such  assess- 
ment is  levied  but  not  paid  within  sixty  days,  are  forfeit- 
able and  may  be  cancelled  and  sold  by  the  directors.' 
It  is  in  this  essential  particular  that  a  stock  company  dif- 
fers from  a  mutual  company  and  an  assessment  company. 
An  imi^airment  of  capital  or  deficiency  in  the  assets  is 
made  good  by  the  assessment  of  capital  stock.  In  a 
mutual  company  such  deficiency  is  repaired  by  an  assess- 
ment of  i)remium  notes,  and  in  a  purelj'^  assessment 
company  deficiencies  are  made  good  by  additional  assess- 
ments on  all  surviving  policy  holders. 

Mutual  Companies 

Inforj>oratio/i  tiiid  Capital.  Mutual  companies  are  or- 
ganized and  incorporated  in  a  manner  similar  to  that  of 
stock  companies,,  except  that  in  lieu  of  capital  stock  the 
company  is  required  to  have  a  minimum  number  of  policy 
holders,  each  of  whom  is  considered  a  member  of  the  com- 
pany. The  statutes  of  Kentucky,  which  are  perhaps  typ- 
ical in  this  respect,  make  it  unlawful  for  any  company  or- 
ganized on  the  mutual  plan  to  begin  business  before  agree- 
ments have  been  made  with  at  least  200  persons,  for  insur- 


'  Foi-  statutes  relatiiiR-  to  impairment  of  capital  see  Ala.  C.  C.  (1907),  sec. 
4553;  111.  K.  S.  (19()5),  c.  73.  .soc.  223:  Ind.  Burns  A.  8.  (1908).  sec.  4(542:  also 
4778  and  4789;  la.  Code  (1897).  .sec.  1731-2:  Ky.  St.  (1903).  .sec.  695;  La.  R.  L. 
(1904),  pp.  850  and  8.54;  Mass.  L.  of  1907.  c.  576.  sec.  8.  also  'M:  Mich.  Ins.  Law 
(1907).  sec.  426;  Minn.  R.  L.  (1906).  sec.  1&38;  Miss.Cofle  (1906)  sec.  2584:  Mont. 
C.  C.  (1895),  sec.  673-4;  Ne))r.  Cobbey's  (i.  L.  (1907).  sec.  6444:  N.  Y.  R.  S.  & 
(i.  L.  (liWl).  V.  2.  p.  1834:  No.  Car.  U.  L.  1905,  sec.  47.33;  N.  Da.  C.  C.  (1905). 
sec.  4432:  Ore.  .St.  (1903).  sec.  3714;  Tenn.  Code  (1896),  sec.  3286:  Texas  R.  S. 
(1897).  Art.  3050.  par.  11;  Wis.  St.a898).sec.]96i5-6ii:  \Si.  U.  S.-  (1899),  sec.  3182. 


36  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

ance  on  which  the  premiums  shall  amount  to  not  less  than 
$100,000  of  which  $50,000  shall  have  been  paid  in  cash, 
and  notes  of  solvent  parties,  founded  upon  actual  and  bona 
fide  applications  for  insurance  shall  have  been  received  for 
the  remainder."  In  Illinois  a  mutual  employers' liability 
company  may  be  organized  but  may  not  commence  busi-* 
ness  until  at  least  25  applications  for  insurance  have  been 
made;  the  total  amount  of  insurance  ai)plied  for  must  be 
based  on  a  pay  roll  of  not  less  than  an  aggregate  annually 
of  $25,000,000  in  wages,  and  the  total  amount  of  the  pre- 
miums on  insurance  so  applied  for  shall  not  be  less  than 
$15,000,  of  which  25  per  cent  must  have  been  paid  in  in 
cash  and  the  balance  secured  by  notes  on  bonds,  or  both.* 
In  Colorado  mutual  companies  are  required  to  have  a 
guarantee  capital  of  at  least  $50,000,  which  consists  of 
personal  notes  on  wliich  a  dividend  of  not  mor3  than  eight 
per  cent  may  be  paid.  This  fund  is  provided  purely  for 
guaranty  purposes,  and  cannot  be  drawn  upon  except  when 
the  cash  funds  have  been  exhausted  and  when  the  contin- 
gent mutual  liability  of  policy  holders  has  been  drawn 
upon  and  found  insufficient  to  meet  the  losses  of  policy 
claims.'  In  a  few  other  states  the  maintenance  of  such  a 
capital  account  is  a  matter  of  discretion  on  the  part  of  the 
company.  However,  a  guarantee  fund  does  not  change 
the  character  of  a  mutual  company  to  that  of  a  stock  com- 
pany.* 

I  Ky.  L.  or  1908.  c.6. 

»  111.  L.  of  1905.  p.  2t»3.  sec.  5. 

»  Colo.  L.  of  1<)07.  f.  193.  sec.  59. 

*  Cooley— Briefs  on  Ins.  Law.  v.  1,  p.  51.  For  other  statutes  relating  to 
incori)orat Ion  and  capital  requirements  of  mutual  insurance  companies, 
seeCai.  t'.  C.  (ISHW).  sec.  4:57.  8  an<l  i>:  Colo.  L.  of  1W)7,  c.  lt«,  sec.  2a;  Del. 
Laws,  V.  22.  c.  fSi.  sec.  4.  Idaho  C.  C.  (1'.m»1).  section  2225:  Ind.  Burns.  A.  S. 
(1908).  sec.  4riii;  la.  Cotle  (1897).  sec.  1692;  Ky.  St.  (190.3),  sec.  647:  La.  R.  L. 
(19(M).  p.  851:  Mass.  L.  of  1907,  0.  570.  sec.  .H4:  .Mich.  Ins.  Law  (1907),  .sec.  1» 
and  16:  Mo.  .\.  S.  (liKHi).  sees.  7852,  7877  and  7879:  Mont.  C.  C.  1895,  sees.  050 
and  653:  N'el>r.  t'olibey's  (i.  L.  (1SH)7).  sees.  6U7  and  6419:  N.  .1.  L.of  19J7,  chs. 
88  and  73:  N.  Mex.  ("omp.  Laws  (1897).  sees.  2095-7;  N.  Dali.  C.  C.  (1905). 
sec.  413t!;   Fa.  Ins.  Law  (1905),  pp.  2.3.  28  and  2t):  Utah  St.  (1907).  sec.  404. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  37 

Af'CiDudldtion  of  J'^uikIh.  Mutual  companies  may  charge 
and  collect  upon  their  policies  a  full  mutual  premium  in  cash 
or  in  notes,  and  may  fix  in  their  by-laws  the  contingent  mut- 
ual liability  of  their  members  for  the  payment  of  losses  and 
expenses  not  jn'ovided  for  by  their  cash  funds.'  The  con- 
tingent liability  of  a  member  usually  cannot  be  less  than 
a  sum  equal  to  and  in  addition  to  the  cash  premium  writ- 
ten in  the  policy.  It  may  be  two,  three  or  four  times  that 
amount  but  whatever  it  is  it  must  be  plainly  and  legibly 
stated  on  the  policy."  It  is  this  fact  of  fixing  the  conting- 
ent mutual  liability  of  the  members  which  distinguishes  a 
mutual  level  premium  company  from  an  asssessment  com- 
pany. Each  policy  holder  in  a  mutual  company  is  in  reality 
a  stockholder  in  the  company.  As  a  policy  holder  he  has 
paid  a  fixed  premium  for  his  insurance.  As  a  stockholder  he 
has  assumed  a  definite  liability  for  the  solvency  of  the 
company  and  is  entitled  to  share  in  the  profits  according 
to  the  liability  assumed.'' 

JJisposition  of  Fmtds.  IMutual  companies  are  retiuired 
to  maintain  a  reinsurance  reserve  of  the  same  character 
and  computed  in  the  same  way  that  stock  companies  are. 
Cash  must  also  be  reserved  to  cover  unpaid  claims  and  in- 
terest and  other  accounts  payable  to  the  company,  but  un- 
settled, before  dividends  may  be  declared.*  A  fund  may 
be  accumulated  from  the  profits  and  invested  according  to 


'  For  a  typical  statement  of  the  law  in  this  respect  see  Mass.  L.  of  1907, 
c.  576,  sec.  48. 

*  For  other  laws  bearin»?  on  this  subject  cf.  Colo.  L.  of  1907,  c.  193.  sec.  71; 
111.  L.  of  1905.  p.  293,  sec.  C;  la.  Code  (1897)  sec.  1705;  Mass.  L.  of  1907.  c.  576. 
sec.  50:  N.  H.  P.  S.  (1901)  c.  1158:  N.Da.  C.  C.  (1905)  sec.  4440;  Pa.  .Ins.  Law. 
(1905).  p.  68;  also  22  CYC  1424. 

*  Cooley— Brief  son  Ins.  Law,  v.  1,  pp.  51 'and  52. 

*  cf.  111.  L.  of  1905,  p.  293,  sec.  18  and  21:  Ind.  Burns  S.  (1908)  sec.  46(>1:  la. 
Code  (1897)  sec.  1714;  Mich.  Ins.  Law  (1907)  sec.  426:  Mo.  A.  S.  (1906)  sec.  7881 
and  7882;  N.  Da.  C.C.  (1905)  sec. 4441;  N.  H.  P.  S.  (liWl)  c.  168,  sec.  5;  Pa.  Ins. 
Law  (1905)  p. -68. 


88  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

law  to  take  the  place  of  notes  given  in  addition  to  cash 
premiums  as  security  for  the  payment  of  policy  claims. 
Such  notes  may  not  be  released  until  the  amount  so  accu- 
mulated is  ecpial  to  (he  minimum  amount  of  capital  re- 
quired of  stock  companies,  but  the  liability  of  each  note 
decreases  proportionately  as  the  profits  are  accumulated.' 
In  other  states  a  permanent  fund  may  be  set  aside  from 
surplus  profits  by  reserving  20  per  cent  of  the  net  surplus 
until  such  fund  is  equal  to  2  per  cent  of  the  insurance  in 
force,  after  which  the  whole  of  the  net  profits  must  be 
distributed," 

Capital  of  a  Mutual  Company  Defined —  Wlien  Assess- 
able. In  the  statutes  of  Illinois  the  capital  of  a  mutual 
company  is  defined  in  the  following  language:  "The 
amounts  received  for  cash  premiums  and  payments  to- 
gether with  the  investments  and  accumulations  thereof  re- 
maining on  hand  atjany  time  shall  constitute  the  actual  funds 
of  such  com  pan  J';  the  amount  due  on  premium  notes  shall 
constitute  the  contingent  fund,  and  the  aggregate  ot  such 
funds  shall  constitute  the  capital  of  such  company."^  The 
statutes  further  provide  that  whenever  a  mutual  company 
is  not  possessed  of  cash  funds  above  its  reinsurance  reserve 
sufficient  to  pay  its  incurred  losses  and  expenses  it  may 
make  an  assessment  for  the  amount  needed,  upon  the 
members  liable  for  assessment  in  proportion  to  their  sev- 
eral liability.* 


•  cf.  111.  L.of  1905.  D.  2i«.  sec.  21;  Ind.  Hums.  A.  Iji.  (1908)  sec.  4«>52.  4o54  and 
4«0:  la.  Code  ns97)  sec.  1704;  K.v.  St.  (1903)  ec.  685:  Nebr.  Cobbe.v's  G.  L. 
(1907)  sec.  tU.-n:  N.  Da.  C.  C.  (1905)  sec.  4437.  4441  and  4442:  N.  Mex.  Com. 
Laws  (1897)  sec.  2111. 

»  Particularly  N.  Da.  C.  C.  (1905)  sec.  4441. 
»  111.  Laws  of  I9(K).  p.  293.  sec.  0. 

*  111.  L.  of  1905  p.  293.  se*-.  »>:  la.  Code.  ( 1897)  sec.  1733:  Ma.ss.  L.  of  1907.  C. 
576:  sec.  50:  .Mich.  Iiis.  Law.  (1907)  sec.  42«):  N.  Da.  C.C.  (1905)  sec.  4444. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  39 

Assessment  Companies 

Incorporation  and  Capital.  Insurance  Qompanies  may 
be  organized  to  transact  business  on  the  assessment  or  co- 
operative plan,  either  with  a  capital  stock  or  on  the  mu- 
tual basis.  •  The  procedure  for  incorporation  is  just  the 
same  as  for  stock  or  mutual  level-premium  companies. 
In  Maryland'  assessment  companies  may  issue  policies  for 
more  than  $1,000  provided  they  have  a  capital  stock  of 
$50,000,  which  must  be  invested  in  interest  bearing'  securi- 
ties and  be  deposited  with  the  state  tx'easurer.  Colorado  re- 
quires that  a  guaranty  fund  of  $10,000  in  cash  or  securi- 
ties be  provided'  and  in  Alabama  such  companies  may  be 
organized  on  the  stock  plan  with  a  minimum  capital  re- 
quirement of  $5,000.'^  The  more  usual  method  is  that  five 
or  more  parsons  incorporate  as  a  mutual  company  but  that 
before  the  new  corporation  may  issue  any  policies  it  must 
have  bona  fide  applications  for  insurance  from  a  definite 
number  of  persons  and  must  have  a  certain  amount  of  cash 
collected  from  these  applicants  and  credited  to  the  mortu- 
ary fund.  The  number  of  such  applications  required  var- 
ies from  100  to  500  and  the  amount  of  cash  required  to  be 
collected  from  $1,000  to  $5,000.  Ten  states  require  that 
one  full  advance  assessment  be  paid  in  cash.* 

Heserves.  Assessment  companies  differ  from  level- 
premium  companies  very  essentially  in  the  matter  of  re- 


'  Gen.  Laws  1903.  Art.  Z\,  sec.  170. 

*  Law.'?  of  liW,  c.  193,  sec.  71. 
•Civil  Code.  1907.  sec.  3375. 

*  For  stafutes  relating  to  conditions  of  incorporation  see  Ala.  C.  C.  (1907) 
sec.  3574:  Cal.  C.  C.  (19(X>).  sec.  4.53e:  Colo.  L.  of  1907,  ch  193,  sec.  71;  Conn 
(i.  ^.  (1902).  sec.  3.)72;  I'la.  L.  of  1905,  c.  5459;  111.  R.  S.  (1905).  c.  73,  sec.  210 
Ind.  A.  S.  (1908).  sec.  47.39;  la.  Code  (1897).  sec.  1787:  La.  R.  L.  (15)04),  p.  880 
Me.  R.  L.  (190a).  p.  497:  Md.  (i.  L.  (1904).  art.  23,  sec.  170:  Mass.  R.  L.  (1902) 
ch.  120.  s«?c.  2—5;  Mich.  Ins.  Law  1907.  sec.  til— 00;  Minn.  G.  L.  (1905),  sec 
1*598:  Mo.  S.  (1906),  sec.  79J2;  Mont.  C.  C.  (1893),  sec.  720;  Nebr.  G.  L.  (1907) 
sec.  C468  and  (U71:  N.  Y.  R.  S.  &  G.  L.  (1901).  p.  1884:  ().  A.  S.  (19<J8),  sec.  3030 
Pa.  Ins.  Law  lSt05,  p.  52:  So.  Da.  C.  C.  (1908),  s  c.  724;  Tenn.  L.  of  1903.  ch 
574;  Texas  L.  of  1903.  ch.  Ill:  Utah  S.  (1903).  sec.  405;  Va.  L.  of  1900.  p.  147 
Wis.  S.  (1898)  sez.  1965a;  Wy.  R.  S.  (I8it9),  sec.  3277. 


40  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

serve  funds.  It  was  noted  in  the  analysis  of  the  level- 
premium  companies  that  they  are  required  by  law  to  keep 
large  reserve  funds  but  an  examination  of  the  laws  relat- 
ing to  assessment  companies  shows  that  this  subject  is  not 
mentioned  in  some  statutes.  In  six  states  the  Iceeping  of 
a  reserve  is  optional'  and  in  twenty  others  it  is  obligratory 
but  the. fund  required  is  very  small  in  comparison  with 
that  of  a  level-premium  company.'  Seven  states  require  a 
reserve  equal  to  the  amount  realized  from  one  periodical 
call  or  assessment;  others  require  one  equal  to  the  maxi- 
mum policy  in  force  while  others  require  that  a  certain 
per  cent  of  each  assessment  shall  be  set  aside  for  this  pur- 
pose until  a  reserve  equal  to  two  dollars  for  every  $5,000 
of  insurance  in  force  has  been  accumulated.'*  After  that 
time  any  cash  on  hand  must  be  used  to  reduce  future  as- 
sessment. Mr.  Miles  M.  Dawson,  an  eminent  New  York 
actuary,  in  his  treatment  of  assessment  life  insurance  em- 
phasizes the  fact  that  this  question  of  reserves  marks  the 
essential  difference  between  an  assessment  and  a  level  pre- 
mium company/  and  Mr.  Chas.  E.  Gross,  in  a  lecture  at 
Yale  University  refers  to  this  same  feature  of  assessment 
insurance  as  one  of  its  principal  sources  of  weakness. 


'  For  laws  in  which  the  mainteniinc  ■  of  a  reservo  is  optional  se«>  Conn.  O. 
a.  (1902)  sec.  3t)07:  (ia.  In.s.  Law  (i!H>:>)  p.  15.  sec.  14;  N.  H.  L.  ot  1S97,  c.  'M; 
Ore.  St.  (1SH«),  sec.  37")! ;  Te.\.  L.  of  liH)5,  c.  125:  Wis.  St.  (1898),  sec.  lawin. 

'  Laws  of  other  states  relatingr  to  reserves  of  assessment  companies.  Ob- 
ligatory. Ala.  C.C.  (1907).  sec.  :^o^*«:  Cal.  C.  C.  (1900),  .sec.  45ah;  111.  L.  of 
1856,  p.  117.  -sec.  12:  Ind.  Burns  A.  S.  (11H)8).  sec.  4749:  Ka.s.  (i.  S.  (19oe>),  sec. 
3644:  Ky.  St.  (1903).  .sec.  t)t52:  Me.  K.  L.  (1903).  sec.  4»8:  Mass.  K.  L.  (15102),  c. 
120,  sec.  10:  Mich.  Ins.  Law  (1907),  sec.  71  and  94:  Minn.  1{.L.  (istOiJ),  sec.  1701; 
Mo.  A.  S.  (190ti),  sec.  7905;  Mont.  C.  C.  (18!)5).  sec.  724:  S.  H.  L.  of  1897,  c.  38; 
No.  Car.  K.  L.  (1905).  .sec.  4792;  N.  Y.  K.  S.  (1901),  v.  2.  p.  1888:  O.  Bates  A.  S. 
(1908),  M-c.  .Tti30l:  R.  I.  Ins.  L  >w,  (1907),  P.  45:  Tenn.  L.  of  1897,  <•.  127,  sec.  7; 
Va.  L.  of  190H.  p.  147:  Vt.  St.  (18iM)  sec.  4184. 

'  For  reserves  of  this  amount  see  111.  L.  of  189:1  p.  117,  sec.  12:  Ind.  Burns 
A.  S.  (1908).  sec.  4719:  Minn.  K.  L.  (1905),  sec.  1701:  Mont.  C.  C.  (1895),  sec. 
724:  N.  V.  K.  S.  (IVWl),  v.  2,  p.  1888;  O.  Bates  A.  S.  (1908),  sec.  3lJ30i;  Tenn.  L. 
of  1897,  C.  127,  sec.  7. 

*  Dawson— A.ssessment  Life  Insurance,  p.  8. 
•Gross— Yale  Insurance  Lectures,  v.  2,  p.  332. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  41 

Other  Le<i<(l  Li)n>t<iti(>nf<  and  dRxeynptionti.  Assessment 
companies  are  usually  exempt  from  the  general  insurance 
laws  of  the  state  and  subject  only  to  those  relating  specif- 
ically to  them.  However  they  are  usually  required  to  ren- 
der an  annual  statement.  In  some  states  the  amount  of 
the  benefits  payable  on  any  one  policy  is  limited  to  the 
amount  that  can  be  realized  from  one  periodical  call  or 
assessment'  and  in  other  states  the  company  is  recjuired  to 
furnish  a  statement  showing-  that  the  amount  that  can  be 
realized  from  any  one  periodical  call  or  assessment  will  be 
equal  to  the  benefit  payable  in  the  maximum  policy  issued. ■* 
Maryland  prohibits  any  assessment  company  from  issuing 
a  policy  for  more  than  ^lOUO  unless  it  have  a  capital  stock 
or  other  available  assets  to  the  amount  of  '^50,00U.' 

Fraternal  Beneficiary  Associations 

Ijegal  Heffulation.  Until  within  recent  years  there  has 
been  almost  no  legal  regulation  of  fraternal  beneficiary 
associations  except  to  specify  in  one  short  section  that 
they  are  exempt  from  the  insurance  laws.  However  the 
National  Fraternal  Congress  in  1900  prepared  and  pub- 
lished a  mortality  table  based  on  the  experience  of  a  num- 
ber of  the  larger  fraternal  orders  in  America  and  also  pub- 
lished and  recommended  the  adoption  of  a  uniform  bill 
^189  7)  for  the  regulation  and  supervision  of  this  class  of 
insurance  organizations.^  Either  in  whole  or  in  part  and 
with  many  minor  modifications  in  particular  instances 
this  uniform  bill  has  now  found  its  way  to  the  statute 
books  of  a  number  of  states  and  constitutes  a  very  signifi-  • 

•  For  a  limited  iX)li<T  soo  N'pbr.  Cobbey's  G.  L.  (1907),  sec.  t)4i>8,  6471  and 
•66151:  ().  Bates  A.  S.  (lSt08).  sec.  ;S030:  Texas  L.  of  1905,  c.  123. 

"ef.  also  Conn.  G.  L.  (nvj2).  sec.  3572;  La.  li.  L.  (1904),  p.  880;  Minn.  R.  L. 
<1005),  sec.  U5!)S;  H.  Da.  C.  C.  (11H)8),  se,-.  724;  Va.  L.  of  1906,  p.  138;  Wis.  St. 
1898,  sec.  1955a. 

»  Gen.  taws  (1904)  Art.  2,3.  sec.  176. 

*Landis— Frienflly  Societies  and  Fraternal  Order.s,  p.  76,  et  .seu. 


42  ACCIDENT  INSURANCE  FOR  WORKINQMEN 

cant  part  of  the  insurance  legislation  which  relates  to  as- 
sessment companies.  In  the  main  this  legislation  in- 
cludes a  detinition  of  fraternal  beneficiary  associations, 
the  substance  of  which  has  been  given  in  a  previous  sec- 
tion of  this  bulletin,  and  a  specification  of  their  powers 
and  limitations  especially  with  referenca  to  incorporation, 
obligations  that  may  be  assumed,  and  bases  on  which  as- 
sessments may  be  charged.  Annual  statements  of  the 
finances  are  also  frequently  re<iuired.  Laws  modeled 
after  the  uniform  bill  usually  exempt  fraternal  companies 
from  all  other  insurance  legislation,  present  and  future, 
unless  they  are  specially  mentioned  in  the  law  and  many 
states  also  specify  that  even  the  law  relating  to  fraternal 
orders  does  not  apply  to  any  society  which  limits  its  bene- 
fits to  $200  and  its  niimbership  to  anj-  particular  trade  or 
calling  or  to  the  employees  of  a  particular  person,  firm  or 
corporation.  In  this  way  most  mutual  aid  associations 
such  as  that  of  the  International  Harvester  Company  are 
exempt  from  any  state  regulation.' 

Incorporation.  The  procedure  for  incorporation  is  just 
the  same  as  for  2t,ny  other  kind  of  insurance  company. 
Any  number  of  persons  usually  not  less  than  five  or  nine 
may  form  the  corporation  but  policies  may  not  hi  issued 
until  a  certain  number  of  applications  for  membership 
have  been  received  and  one  advance  assessment  accord  ipg 
to  the  by-laws  has  been  paid  by  each  such  applicant  to  be 
placed  to  the  credit  of  a  mortuary  fund.  The  number  of 
applicants  required  varies  from  200  to  500.^ 


'  For  citations  tosubject  matter  of  tlif  preoe<linjr  paragraph  see  the  list 
citations  trivcii  on  p.  20  or  sections  of  tiic  statutes  ininie<liatoiy  subseiiuent 
to  tlieni. 

*  For  typical  laws  relatin«r  to  incorporation  of  fraternal  orders  see  111.  L. 
of  1893.  p.  130.  M'c.  7:  I\an.  G.9.  (1905)  s«t.  3»ii>2:  Micli.  Ins.  Law  (1W7)  sec. 
145  and  132;  Nebr.  Cobbev's  (i.  L.  (1907)  «•<•.  6054:  X.  Y.  K.  5«.  (1901)  v.  2.  p.. 
1896. 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  4S 

Powers  and  Lhnitatio)ts.  Fratex'iial  beneficiary  asso- 
ciations are  usually  given  the  power  to  contract  life  insur- 
ance and  to  insure  against  loss  of  life  or  physical  disabil- 
ity of  the  insured  due  to  accidents  or  disease.  They  are 
also  frequently  allowed  to  grant  old  age  annuities,  but  are 
generally  prohibited  from  paying  such  annuities  before  the 
insured  has  reached  the  age  of  65  or  VO.  Nebraska  pro- 
hibits any  such  association  from  issuing  a  policj-  for  more 
than  $1,000  until  it  has  at  least  2,000  beneficial  members. 
All  such  companies  and  associations  are  required  to  derive 
their  funds  for  the  payment  of  losses  and  expenses,  and  for 
the  creation  and  maintenance  of  reserves  from  periodical 
calls  and  assessments,  and  some  states  require  that  a  clause 
be  written  in  the  policy  authorizing  extra  assessments  to 
meet  deficiencies.'  The  laws  of  Massachusetts  pi'ovide 
that  if  the  amount  realized  from  one  assessmant  is  not 
equal  to  the  face  of  the  policy,  the  benefit  will  be  cor- 
respondinglj'  reduced.''  Several  states  have  required  that 
the  rate  of  assessment  be  based  on  the  mortality  table 
adopted  by  the  National  Fraternal  Congress.'*  Most  fra- 
ternal orders  are  not  allowed  to  employ  paid  agents  except 
for  the  organizing  and  supervising  of  local  lodges,  but  they 
may  offer  special  inducements  to  members  for  the  purpose 
of  increasing  the  enrollment  in  these  lodges. 


'  For  citations  to  most  of  tlie  subject  matter  in  this  paragrraph  see  list  of 
citations  given  on  page  20,  or  the  statute  sections  immediately  subseauent 
to  them. 

^  R.  L.  (1932).  c.  119,  sec.  6. 

'  For  t.vpical  statutes  relating  to  mortality  tal)les  of  the  National  Frater- 
nal Congress  see  la.  L.  of  liW,  c.  86:  Me.  R.  B.  (1903).  pp.  501-2;  Mass.  R.  L. 
(1902).  c.  119.  sec.  4:  N.  Da.  C.  C.  (1905),  sec.  4581;  O.  Bates,  A.  S.  (1908).  sec. 
3621-22:  Okla.  Wilson.  A.  S.  (1903),  sec.  3249;  Tenn.  L.  of  1905,  c.  480:  Wash. 
L.  of  li»01,  p.  362.  see.  12;   Wis.  L.  of  1907,  c.  511. 


44  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

lieserce».  The  maintenance  of  reserve  funds  is  optional 
with  most  fraternal  beneficiary  associations.'  Maryland, 
however,  recjuires  fraternal  companies  to  maintain  and  de- 
posit Avith  the  state  treasurer  a  reserve  fund  of  $10,000 
invested  in  interest  bearinjf  securities,'  and  Maine  requires 
a  similar  though  more  extensive  fund.'  In  this  instance 
the  reserve  must  be  equal  to  fifteen  per  cent  of  the  total 
mortuary  receipts,  at  least  until  a  fund  of  $50,000  has 
been  accumulated,  which  must  be  invested  in  interest  bear- 
ing securities  and  deposited  with  the  state  treasurer.  It 
may  be  drawn  upon  to  meet  death  claims  but  for  no  other 
purpose,  and  may  not  be  drawn  upon  when  it  is  less  than 
the  amount  of  one  assessment,  or  at  least  $1,000.  If  it  is 
decreased  below  this  amount  it  must  be  restored  by  assess- 
ment within  six  months. 


*  For  typical  statutes  relatintr  to  reserves  of  fraternal  beneficiary  asso- 
ciations, see  Ark.  Kirby's  Digrest  (1904),  sec.  4339:  Mass.  U.  L.  (1902).  c.  119, 
sees,  t)  and  7;  Minn.  K.  L.  (1905).  sec.  1703;  Mo.  St.  (190»)),  sec.  1408;  N.  Y.  R. 
S.  (1901).  V.  2,  p.  1897:  O.  Bates  A.  S.  (1908).  sec.  3631—19;  S.  Car.  C.  C.  (1902). 
sec.  1830:  Tenn.  L.  of  1905.  c.  480. 

»  G.  L.  (11903),  art.  2.3,  sec.  210. 

'  R.  f».  (1903),  pp.  502-3. 


AUCIDENT  INSURANCE  FOR  WORKINGMEN  45 


ANALYSIS  OF  THE  BUSINESS  METHODS 
OF  SOME   FOREIGN  COUNTRIES 


Accident  Insurance  in  Germany 

Scope  of  the  Law.  Since  1884  tlie  German  g'overnment 
has  required  that  all  workmen  and  administrative  officers 
employed  in  mines,  salt  works,  establishments  in  which 
ores  are  treated,  (xuarries,  pits,  on  wharves,  and  in  build- 
ing- establishments,  factories  and  smelting  works  must  be 
insured  against  accidents  occurring  in  the  course  of  their 
occupations.'  In  general  the  compensation  consists  of 
medical  treatment  and  66f  per  cent,  of  wages  for  dis- 
ability after  the  thirteenth  week.  Prior  to  that  time  com- 
pensation for  accident  comes  out  of  sickness  insurance 
funds.  Compensation  up  to  a  maximum  limit  of  60  per 
cent  of  the  annual  wage  may  be  paid  the  widow,  children 
and  other  dependents  in  case  of  fatal  accidents  in  addition 
to  funeral  benefits  and  whatever  may  have  been  paid  pre- 
vious to  death.  In  its  nature  this  is  workmen's  collective 
insurance  in  that  it  is  furnished  by  employers  and  covers 
all  the  workmen  in  the  factory  or  establishment.  Em- 
ployers secure  this  insurance  by  becoming  members  of 
"Trade  Associations"  which  in  reality  are  insurance  cor- 
porations organized  on  the   mutual  plan  along  trade  lines 


'  German  Insurance  Act  of  July  0,  1884,  sec.  1. 


46  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

and   clothed   with   all  the  corresponding  legal  pights  and 
liabilities.' 

Detertitlnfitiiiti  <>/  Tnnh  Lhies.  The  German  law  con- 
templat(»s  the  organization  of  trade  associations  each  of 
which  shall  embrace  one  trade  only  or  several  allied  trades, 
extending  over  the  whole  empire  or  limited  to  particular 
districts.  Preliminary  to  the  organization  of  the  trade 
associations  it  devolved  upon  the  administrative  officials 
of  the  government  to  determine  the  particular  trades  or 
groups  of  allied  trades  for  which  an  association  would  be 
recognized  by  the  Bundesrath.  This  classification  was 
made  from  information  furnished  by  employers  who  were 
required  by  law  to  send  to  the  lower  administrative  of- 
ficials of  the  district  within  a  designated  time,  a  statement 
of  the  articles  j)roduced  and  the  manner  of  producing 
them.  From  these  statements  a  list  of  all  the  establish- 
ments in  a  district  was  drawn  up,  arranged  according  to 
the  classification  of  imperial  statistics  and  stating  the 
articles  produced,  the  manner  in  which  they  are  produced, 
and  the  number  of  employees  who  are  to  be  insured.  The 
list  was  then  to  be  filed  with  the  imperial  insurance  bureau. 
This  work  is  done  because  competing  associations  are  not 
allowed;  but  the  employer  is  required  to  insure  in  the  as- 
sociation corresponding  to  his  industry  in  the  district  in 
which  his  establishment  is  situated.  As  the  result  of  the 
foregoing  restrictions  accident  insurance  in  Germany  is 
compulsory  to  the  extent  that  all  employers  in  certain  in- 
dustries are  required  to  insure  their  workmen  and  that 
they  must  obtain  this  insurance  in  the  association  of  the 
particular  trade  and  district  to  which  their  industry  be- 


'  German  Workmen's  Tnsuranoe  Act.  1884.  sees.  5,  6.  9  and  10.    See  also 
Society  of  Comp.  Leif.  Jouni..  1897,  v.  2,  pp.  33-4. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  47 

long'j*.  Employers  thereby  become  automatically  members 
of  a  corporation  and  as  such  conduct  the  business  of  these 
mutual  corporations  according*  to  their  own  volition,  sub- 
ject only  to  certain  regulations  of  the  imperial  insurance 
bureau  relating  to  solvency.' 

Incorporation.  The  trade  associations  are  organized 
by  the  voluntary  action  of  employers  in  meetings  arranged 
for  that  purpose.  By-laws  are  drawn  \ip  which  in  general 
must  fix  the  name  and  seat  of  the  association;  the  manner 
of  selecting  the  executive  committee  and  the  extent  of  its 
powers;  the  calling  of  the  general  meeting;  the  voting  of 
members;  the  principles  on  which  officers  shall  act  in  ar- 
ranging the  classification  of  the  danger  tariff,  the  pro- 
cedure in  case  of  changes  in  establishments  or  changes  of 
•employers;  the  consequences  of  a  stoppage  of  work  in 
establishments,  and  more  particularly,  the  manner  of  mak- 
ing certain  the  payment  of  contribiitions  of  employers 
^whose  establishments  close;  the  handling  and  auditing  of 
the  yearly  accounts  and  the  manner  of  exercising  the 
powers  granted  the  association  for  the  purpose  of  prevent- 
ing accidents  and  inspecting  establishments.  When  the 
trade  association  has  thus  completed  its  organization  and 
obtained  the  consent  of  the  Bundesrath  it  is  in  full  work- 
ing order  and  may  begin  business.  The  consent  of  the 
Bundesrath  may  be  refused  (l)  if  the  number  of  establish- 
ments for  which  the  trade  association  is  to  be  formed,  or 
the  number  of  workmen  employed  in  them,  is  too  small  to 
guarantee  the  ability  of  the  association  permanently  to 
fulfil  its  obligations  in  respect  to  insurance  against  ac- 
cident; (2)  if  establishments  are  excluded  from  the  trade 


'  For  subject  matter  of  precedljii?  parasrraph  cf.  German  Workingmen's 
Insurance  Act.  1884,  sec.  11,  and  Jour,  of  the  Society  of  Comparative  Letrls- 
lation,  1897,  v.  2.  pp.  b9-44. 


48  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

association,  which,  because  of  their  small  number  or  the 
small  number  of  workmen  employed  in  them,  can  not  form 
a  solvent  association  of  their  own  and  can  not  be  prac- 
tically assigned  to  another  association;  (s)  if  a  minority 
opposes  the  formation  of  the  trade  association  and  offers 
to  form,  for  specific  occupations  or  districts,  a  separate 
association  deemed  to  be  solvent."  Provision  is  made  in 
the  law  for  the  organization  of  the  trade  associations  by 
the  imperial  insurance  bureau  in  those  districts  where  the 
employers  do  not  take  the  initiative  in  this  matter  them- 
selves. ' 

Pensiou  Claims— J/oir  L'ojuidated.  An  accident  caus- 
ing death  or  total  disability  gives  rise  to  a  pension  or  in- 
demnity that  may  run  for  a  number  of  years  and  thereby 
becomes  a  fixed  charge  on  the  association  throughout  the 
period  of  its  duration.  There  are  two  ways  of  meeting 
these  claims  and  the  way  in  which  they  are  met  very  largely 
determines  the  character  and  the  amount  of  the  reserve 
fund  that  must  be  maintained  by  the  association.  The 
first  method  is  to  charge  as  a  liability  for  that  year  the 
capital  value  of  the  pension,  estimated  according  to  actuar- 
ial principles,  and  to  carry  to  the  reserve  fund  an  amount 
sufficient  with  its  interest  accumulations  to  meet  all  the 
future  payments  required  by  the  pension  claim.  The  con- 
tributions collected  therefore  must  be  large  enough  to 
supply  the  amount  of  cash  necessary  to  be  placed  in  the 
reserve  fund.  In  other  words  according  to  this  method 
an  association  estimates  by  means  of  actuarial  principles 
its  entire  liability  for  a  given  pension  as  soon  as  it  be- 
comes a  claim  and  collects  in  its  cash  contributions  for 
that   year  an   amount  sufficient   with  the  interest  accumu- 


•  German  Workmen's  Insurance  Act,  1HS4.  sees.  12.  15  and  17. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  49 

lations  to  liquidate  all  of  the  pension  payments  just  as 
they  fall  due.  The  advantage  of  this  method  is  that  it  i& 
a  scientific  way  of  providing  for  the  payment  of  claims  as 
they  accrue  and  the  objection  that  is  sometimes  offered  ta 
it  is  that  it  requires  the  maintenance  of  large  reserve  funds. 
The  other  method  is  to  charge  as  a  liability  for  the  year 
only  that  part  of  the  pension  which  is  payable  during  that 
year  and  to  leave  the  payments  falling  due  in  subsequent 
years  to  the  receipts  of  those  years.  In  this  instance  the 
contributions  levied  during  the  first  years  of  the  existence 
of  an  association  are  small  but  as  the  association  grows 
older  and  the  number  of  its  pension  claims  accumulate  the 
contributions  levied  must  be  increased  to  meet  the  expense 
of  accumulated  pension  claims.  Consequently  it  can  be 
foreseen  that  the  older  the  association  becomes  the  larger  the 
contributions  that  are  levied  upon  the  members  must  be. 
The  advantage  of  this  method  is  that  it  does  not  require 
the  accumulation  of  such  large  reserves  but  it  is  objected 
to  because  members  who  join  the  Association  in  the  later 
years  of  its  existence  are  called  upon  to  help  pay  pensions, 
that  became  claims  before  they  became  members.' 

Meserve  Funds.  The  German  government  has  adopted 
the  principle  of  the  second  method  described  in  the  pre- 
ceding paragraph  and  requires  a  reserve  fund  to  be  created 
and  maintained  to  offset  the  increasing  contributions  re- 
quired and  to  bring  about  a  state  of  equilibrium  in  the 
charges  for  pension  payments.  This  fund  is  computed  ac- 
cording to  statutory  rule  by  setting  aside  300  per  cent  of 
the  amount  paid  out  in  indemnities  during  the  first  year;. 
200  per  cent,  in  the  second;  150  in  the  third;  100  in  tha 
fourth;  80  in  the  fifth;  60  in  the  sixth;  and  thereafter  until 


'  Wlllousrhby.    Worklngmen's  Insurance,  pp.  70,  71  and  104. 
4 


50  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

the  eleventh  year  10  per  cent  less  each  year.  After  the 
close  of  the  first  eleven  years,  the  interest  of  the  reserve 
fund  is  to  be  added  to  the  principal  until  the  fund  shall 
have  reached  twice  the  sum  annually  needed  by  the  asso- 
ciation. Thereafter  the  interest  of  the  reserve  may  be 
used  to  decrease  the  contributions.  The  purpose  of  this 
reserve  is  to  place  the  finances  of  the  association  on  such 
a  basis  that  the  contributions  made  by  the  members  would 
need  to  be  large  enough  only  to  cover  the  actual  payments 
for  current  losses  and  expenses  for  the  year  and  to  obviate 
the  objection  that  otherwise  new  members  would  have  to 
assist  in  paying  losses  which  had  become  claims  on  the 
association  before  they  became  members.' 

CotitrfbutfoHS — Jlmr  Detennined ,  The  entire  business 
management  is  vested  in  a  general  meeting  of  the  associa- 
tion, which  may  delegate  part  of  its  duties  as  an  executive 
committee  according  to  its  by-laws.  The  management  in- 
cludes such  duties  as  the  classification  of  industries  ac- 
cording to  the  hazard  involved,  the  insi)ection  of  estab- 
lishments, the  adoption  of  measures  for  the  prevention  of 
accidents,  the  determination  and  assessment  of  contribu- 
tions, and  the  administration  of  funds  collected.  Section 
28  of  the  law  of  1884  provides  that  the  general  meeting  of 
the  association  shall  establish  rules  for  classifying  estab- 
lishments according  to  the  danger  of  accident  in  them, 
and  for  determining  the  amount  of  the  contributions  in 
different  establishments  according  to  the  danger  tariff.  The 
.assignment  of  establishments  to  the  different  classes  in  the 
danger  tariff  is  done  by  the  officers  of  the  association  in 
the  manner  prescribed  in  the   by-laws.     Employers   have 


'  German  Workman's  Insurance  Law,  1884,  Sec.  18;  Willousrhby.    Work- 
Ingmen's  Insurance,   pp.  70-1. 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  51 

the  right  to  appeal  from  the  assignment  made  to  the  im- 
perial insurance  bureau.  When  it  is  recalled  that  tlie  em- 
ployers themselves  make  these  by-laws  and  choose  their  own 
officers  under  them,  it  will  be  readily  understood  how 
completely  the  actual  management  of  the  business  of  the 
insurance  institutions  is  left  to  the  men  who,  nominally  at 
least,  carry  burden.  Provision  is  also  made  for  the  revi- 
sion of  the  danger  tariff  at  least  once  in  five  years,  and  for 
the  union  of  two  or  more  associations  for  the  purpose  of 
joint  action,  in  part  or  in  whole  in  paying  indemnities.' 
Classification,  of  Industries  and  Assessment  of  Contri- 
butions. The  Society  of  Comparative  Legislation  has 
published  a  description  of  the  way  in  which  industries  are 
actually  classified  by  the  German  trade  associations  and  of 
the  manner  in  which  the  assessment  of  contributions  is 
made.  The  paragraphs  relating  to  these  subjects  are 
quoted  here  in  full.  From  this  description  it  will  be 
readily  seen  that  accident  insurance  in  Germany  is  assess- 
ment insurance  in  a  mutual  corporation  organized  along 
trade  lines. ^ 

"According  to  the  scheme  of  the  act  of  1884,  the  sums  re- 
quired for  the  payment  of  the  compensation  awarded  and  the 
current  expenses  of  administration  of  tlie  association,  were  to  be 
raised  and  levied  among  its  members  in  such  a  way  that  each 
employer  should  pay  a  fair  equivalent  to  the  risk  which  the  as- 
sociation was  undertaking  on  his  behalf.  Thus  in  calculating 
the  contributions  of  the  individual  employer  two  factors  required 
to  be  taken  into  consideration:  the  number  of  workmen  employed 
by  him,  and  the  extent  of  the  danger  to  which  they  were  exposed 
during  their  work.  It  was  proposed  to  effect  this  by  assigning 
to  each  establishment  attached  to  the  association  a  number,  called 
a  co-efficient  of  risk  (Gefahrenzifl'er  or  lieitragsfuss),  which  was 
to  correspond  to  the   burden  per  unit  of  wages  paid,  which,  in 


'  German  Workmen's  Insurance  Act.  1884.  Sees.  17  and  28. 
^Journal  of  .^ociet.vof  Comnarative  Legislation.  18j>7.  v.  2,  up.  3!>-42. 


52  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

consequence  of  the  accidents  occurring  in  it,  the  establishment 
was  likely  to  lay  upon  the  association.  The  contribution  due 
from  the  employer  to  the  association  would  then  be  proportional 
to  the.  number  obtained  by  multiplying  the  total  amount  of  wages 
paid  in  the  establishment  belonging  to  him  by  its  co-efficient  of 
risk." 

"The  tables  of  risks  of  the  different  associations  naturally  dif- 
fer very  considerably,  but  they  must  agree  in  dividing  the  estab- 
lishments into  classes  according  to  the  elements  of  danger  attend- 
ing different  kinds  of  work.  Thus  trades  in  which  steam-engines 
are  used  will  generally  bear  a  higher  co-efficient  than  those  in 
which  hand-power  alone  is  employed.  Within  the  limits  of  the 
classes,  subdivision  is  allowed  according  to  the  greater  or  less 
extent  of  the  danger.  Thus  a  business  only  using  one  small 
steam  engine,  within  range  of  which  few  of  the  workmen  need 
come,  will  be  rated  lower  than  a  business  of  the  same  kind  with 
a  shop  full  of  engines.  Regard  will  also  be  haa  to  the  extent  to 
which  in  the  establishment  in  question  the  general  rules  formed 
for  the  preivention  of  accidents  are  complied  with,  but  it  is  not 
permitted  to  rate  a  business  higher  on  account  of  neglect  in 
complying  with  special  safety  regulations.  Such  neglect  is  pun- 
ished, if  at  all,  in  another  way." 

"The  assessment  of  the  contribution  of  the  individual  em- 
ployer is  made  by  the  general  board,  and  payment  is  due  as  soon 
as  it  is  communicated  to  him.  He  may  dispute  it  before  the 
board  if  he  is  dissatisfied,  and  he  has  also  a  limited  right  of  ap- 
peal to  the  insurance  office,  but  only  on  the  ground  of  some  error 
in  calculation,  or  of  some  mistake  as  to  the  amount  of  wages  paid, 
or  the  co-efficient  of  risk  of  the  establishment.  But  the  employer 
cannot  appeal  on  either  of  the  last  two  grounds  if  he  has  made 
default  in  supplying  the  necessary  information  to  the  association. 
The  right  of  appeal  seems  restricted,  but  in  reality  it  covers  all 
the  ground.  The  other  items  upon  which  the  calculation  i» 
based  are  such  as  concern  the  members  of  the  association  gen- 
erally, and  the  proper  place  to  dispute  them  is  the  general  meet- 
ing of  the  association  or  section  when  the  yearly  accounts  are 
presented  for  consideration  and  approval." 

"The  method  by  which  the  annual  budget  of  the  associations  is 
made  up  and  balanced  must  next  be  explained.  The  compensa- 
tion due  to  persons  injured,  or  their  relatives,  is  paid  as   it  falls 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  58 

due  by  the  post-oflBce.  Thus  the  state,  through  the  post-office, 
guarantees  its  payment,  and  advances  the  sums  of  money  re- 
quired. The  accounts  of  the  associations  are  made  up  yearly,  and 
the  necessary  amount  levied  upon  the  members  in  a  single  pay- 
ment. 

"Within  eight  weeks  after  the  conclusion  of  the  financial  year 
the  postal  authorities  forward  to  the  association  a  statement  of 
the  payments  made  on  its  behalf  during  the  year.  The  sum  of 
these,  together  with  the  e.xpenses  of  administration  and  the  sum, 
if  any,  to  be  placed  to  the  reserve  fund,  gives  the  total  sum  to 
be  raised." 

"The  members  of  the  association  on  their  side,  within  six  weeks 
of  the  end  of  the  financial  year,  forward  a  statement  showing  the 
number  of  insured  workmen  employed  during  the  year,  the  total 
amount  of  wages  paid,  and  the  co-efficients  of  risk  at  which  their 
establishments  are  rated.  Only  one-third  of  the  excess  above 
1,200  marks  of  the  yearly  earnings  of  individuals  is  taken  into 
account.  In  default  of  such  a  statement  one  is  drawn  up  by  the 
confidential  agents.  Care  is  taken  in  this  connection  to  avoid  all 
unnecessary  inquiry  into  the  business  of  the  employer,  consist- 
ent with  retaining  the  power  of  verifying  his  statements.  Thus 
he  is  not  compelled  to  give  the  names  or  wages  of  individual 
workmen,  and  in  practice,  if  it  is  necessary  to  examine  his  books, 
he  can  have  it  done  by  some  one  from  a  distance  who  is  not  a 
'trade  rival." 

Accident  Insurance  in  Austria 

/Scope  of  the  Law.  In  1887  Austria  adopted  a  compul- 
sory accident  insurance  law  which  embodied  the  principle 
of  the  German  law  but  which  diffei's  from  the  German  law 
in  many  of  the  details  of  organization  and  administration. 
The  law  includes  all  workmen  and  administrative  officials 
employed  in  transportation,  manufacturing,  mining,  quar- 
rying, and  building,  and  all  occupations  in  agriculture 
and  forestry  in  which  power  machinery  is  used.  Compen- 
sation is  paid  for  all  bodily^  injuries  occurring  in  the  course 
of  employment  and  amounts  to  all    expenses    for    medical 


54  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

treatment  and  60  per  cent  of  the  average  daily  wages  for 
period  of  disability.  In  ca»e  of  death  funeral  expenses 
and  a  pension  for  the  widow  and  children  not  exceeding 
50  per  cent  of  the  average  wages.' 

()rf/tiniztit!nn.  In  general  the  insiiranca  is  provided  in 
an  'insurance  institution"  which  is  a  corporation  'under 
governmental  supervision  in  accordance  with  the  limita- 
tions of  other  insurance  companies  and  the  special  provi- 
sions of  this  act."  Section  9  of  the  Act  of  1887  says 
that  "the  insurance  prescribed  under  section  1  shall  be 
under  the  management  of  a  special  insurance  institution 
organized  for  this  purpose  and  resting  upon  the  principle 
of  mutuality."  There  are  seven  of  these  institutions  which 
are  organized  on  a  territorial  basis  corresponding  to  the 
political  divisions  of  Austria  instead  of  along  trade  lines 
as  the  trade  associations  of  Germany.  The  proprietors  of 
establishments  in  which  workmen  are  reciuired  to  be  in- 
sured are  declared  by  law  to  be  members  of  the  institu- 
tions although  proprietors  who  have  insured  their  em- 
ployees to  the  same  extent  in  some  other  company  to  which 
they  pay  as  large  a  contribution  as  they  would  be  required 
to  paj^  as  members  of  the  insurance  institutions,  may  be 
released  from  such  membership  by  permission  of  the  Min- 
ister of  the  Interior.  Each  institution  prepares  its  own 
by-laws  after  a  model  form  published  by  ministerial  decree 
which  in  general  provide  for  the  voting  powers  of  members, 
the  choice  of  representatives  of  proprietors  and  insured 
workmen,  assessment  periods  and  the  form  and  content  of 
the  declarations,  reports  and  accounts  which  are  to  be 
made  by  proprietors  and  sent  in  to  the  insurance  institutions. 
The  management  of  the  business  is  conducted  by  a  board 


'  See  Austrian  Workmen's  Insurance  Act  1887.  Hec.  1.  5.  t>.  7  and  8. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  55 

of  directors,  one-third  of  whom  are  representatives  of  the 
proprietors;  one-third,  representatives  of  the  workmen  and 
one-third  persons  familiar  with  industrial  conditions  of  the 
district,  who  are  appointed  by  the  Minister  of  the  Interior. 
An  examination  of  the  Austrian  lavv  shows  that  accident 
insurance  in  Austria  is  compulsory  to  the  extant  that  all 
employers  in  certain  industries  must  insure  their  workmen 
against  accidents  occurring  in  the  course  of  their  employ- 
ment and  that  with  certain  exceptions  this  insui'ance  must 
be  obtained  from  mutual  corporations  organized  by  the 
government  to  correspond  to  the  political  divisions  of  the; 
country  but  managed  for  the  most  part  by  the  employers 
and  workmen  themselves. 

Ciasiiijicatio/i  and  I/wpeetfon  of  Industries.  The  law 
pi'ovides  that  all  the  various  establishments  shall  be  divided 
into  different  classes  of  risk  in  which  there  are  several  suc- 
cessive grades  according  to  the  danger  of  accident  which 
thej'  present  and  that  the  particular  grade  or  relative  position 
occupied  by  an  establishment  shall  be  designated  by  a 
number.  The  number  used  to  designate  the  most  danger- 
ous class  is  one  hundred  and  all  others  are  fractions  of  this 
number,  i.  e.  percentages  which  have  been  termed  Co-effi- 
cients of  Risk."  The  general  classes  of  establishments  are 
fixed  by  the  government  but  the  assignment  of  a  particular 
co-efficient  to  an  establishment  is  done  by  the  insurance 
institution  in  which  the  workmen  are  insured.  The  in- 
spection of  establishments  is  done  by  the  local  factory  in- 
spectors at  the  reciuest  of  the  insurance  institutions  and 
the  expenses  of  such  inspection  are  considered  as  part  of 
its  expenses  of  management.  An  appeal  in  regard  to  the 
classification  of  the  industry  and  the  assignment  of    a  co^ 


'  See  Austrian  Workmens  Insurance  Act,  1887,  sees.  t>,  13,  and  57. 


66  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

«fficient  of  risk  may  be  taken  to  the  provincial  administra- 
tive authorities  (politische  Landesbehorde)  and  finally  to 
the  Minister  of  the  Interior.' 

Determinutum  of  the  Iiuxirance  Contribution.  With- 
in fourteen  days  of  the  expiration  of  a  period  set  by  the 
Minister  of  the  Interior  all  proprietors  subject  to  the  Act 
are  required  to  make  a  report  to  the  insurance  institution 
of  the  district  in  which  their  establishment  is  situated. 
This  report  contains  a  statement  of  the  object  and  nature 
of  the  establishment,  the  number  of  insurable  persons 
there  employed  and  the  amount  of  their  yearly  earnings  to 
be  taken  as  the  basis  of  their  insurance.  In  the  case  of 
new  establishments  the  date  of  opening  must  also  be  re- 
ported. A  preceding  section  of  the  law  prescribes  the 
method  by  which  the  amount  of  wages  shall  be  determined 
and  fixes  the  yearly  wage  at  three  hundred  times  the  aver- 
age daily  wage.  This  method  as  it  has  been  interpreted 
and  put  into  actual  operation  by  the  insurance  institutions 
and  administrative  ofticials  of  the  government,  is  of  very 
great  significance  in  the  classification  of  establishments 
because  it  reduces  the  various  establishments  to  a  common 
basis  for  determining  the  amount  of  hazard  involved  by 
ascertaining  the  actual  amount  of  labor  expended  in  a 
given  plant  in  the  given  period  instead  of  the  number  of 
laborers  employed.  In  this  way  the  Austrians  are  enabled 
to  account  for  the  additional  element  of  danger  involved 
in  an  establishment  which  employs  eight  men  ten  hours  a 
day  on  a  piece  of  work  over  one  which  employs  ten  men 
eight  hours  a  day  on  a  similar  piece  of  work.  The  follow- 
ing description  of  this  method  is  taken  from  Prof.  Wil- 
loughby's    Workingmen's    Insurance:     *  Each    industrial 


'  Austrian  Workmens  Insurance  Act.  1887.  .'*ec.  14.  18  and  28. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  57 

establishment,  in  making  its  report  to  the  insurance  de- 
partment, is  requii-ed  to  show,  not  only  the  total  number 
of  persons  employed,  but  the  total  number  of  hours  of 
labor  performed.  With  this  data,  it  is  possible  to  calcu- 
late the  number  of  workingmen  required  to  perform  the 
same  amount  of  labor  if  working  full  time  for  300  days  in 
the  year.  This  number  of  complete  workingmen  is,  then, 
the  number  used  for  purposes  of  comparison  with  the  num- 
ber of  accidents.  There  is  no  doubt  but  that  this  method 
constitvites  a  radical  improvement  over  the  German  prac- 
tice. It  is  evident  that  in  this  way  it  is  possible  to  calcu- 
late, in  a  much  more  scientific  and  accurate  way,  trade 
risks  of  accidents,  than  if  no  account  were  taken  of  the 
time  that  the  establishments  were  not  in  operation,  or 
wete  only  running  part  time."'  Having  thus  ascertained 
a  basis  for  the  determination  of  contributions  the  officers 
of  the  insurance  institutions  determine  the  total  amount 
necessary  to  liquidate  the.  current  losses  and  expenses  and 
amount  necessary  to  maintain  the  reserves  and  assess  the 
members  of  the  institutions  in  proportion  to  the  degree  of 
risk  in  their  several  establishments.'' 

Reserve  Funds.  The  Austrian  law  provides  that  each 
insurance  institution  shall  set  aside  a  sum  each  year  to  be 
used  as  a  reserve  fund  and  that  any  surplus  accruing  from 
the  management  of  the  business  may  be  applied  to  this 
fund  but  that  in  no  instance  shall  the  reserve  fund  amount 
to  more  than  10  per  cent,  of  the  funds  necessary  for  the 
liabilities  of  the  insurance  institution.  Two-thirds  of  this 
reserve  constitutes  a  si)eeial  reserve  for  the  institution  it- 
self and  one-third  is  credited  to  a  common   fund  for  the 


'  WiUoujrhby— Worklnsrmen's  Insuiance.  p.  lOii. 

"  Austrian  Workmen's  Insurance  Law,  1887,  sees.  6, 18,  19,  20,  21  and  22. 


58  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

benefit  of  all  the  insurance  in.stitntions.  The  reserve  fond 
cannot  b^*  flrawn  upon  except  in  case  of  a  deficit  in  the 
yearly  balance  and  the  special. reserve  must  have  been  ex- 
hausted before  the  common  reser\'e  can  be  drawn  upon.* 
In  addition  to  the  fore;^oin$f  reser\'e  the  capital  value  of  all 
pensions  estimated  according  to  actuarial  principles,  is 
collected  in  the  contributions  of  the  year  in  which  such 
pensions  become  a  claim  on  the  institution  and  is  set  aside 
for  the  liquidation  of  pension  payments  as  they  fall  due. 
This  is  the  first  one  of  two  methods  of  settlintf  pension 
claims  that  were  described  in  a  preceding  section  (page  48). 
The  following  quotation  is  an  explanation  of  this  fund  as 
given  by  Prof.  Willoughby: 

"Finally,  it  is  necessary  to  say  a  few  words  concerning  the  sys- 
tem adopted  by  Austria  for  the  liquidation  of  the  indemnities  to 
which  accidents  give  rise.  U  will  be  remembered  that,  in  Ger- 
many, each  year  is  made  to  pay  only  thft  sums  actually  disbursed 
during  the  year,  without  nrgard  to  the  tim»'when  such  liabilities 
were  incurred.  In  Austria,  however,  the  more  scientific  system, 
was  adopted  whereby  each  year  is  required  to  provide  for  the 
liabilities  incurred  during  its  course,  though  their  complete  liqui- 
dation may  not  be  accompii.shed  for  a  great  many  years.  Upon 
an  accident  occurring,therefore,thc  amount  necessary  for  the  com- 
plete payment  of  the  pension  to  whicli  it  gives  rise,  is  calculated 
according  to  tables  of  mortality,  and  then  carried  to  the  special 
insurance  fund  for  the  payment  of  pensions.  The  consequences 
of  this  sy.stem  are,  that  in  the  beginning,  the  payments  on  ac- 
count of  j»ensions  are  much  larger  than  they  would  be  under  the 
German  method.  On  the  other  hand,  these  payments  should  re- 
main fairly  constant  in  amount,  instead  of  constantly  increasing 
until  a  period  of  equilibrium  is  reached,  as  occurs  under  the  lat- 
ter svstem.^ 


'  .SuHtrian  Workmen'.**  Innnrance  Law.  ISST.  ^inc.  15. 
'  Will  jUtfliby-^NVorkintrmcn's  Insuran><-,  p.  104. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  5» 

Insurance  in  the  Friendly  Societies  of  England 

Closely  Akin  to  Fratenutl  Orders.  The  Friendly  Soci- 
eties of  Eiio:land  furnish  another  very  interesting  and 
practical  illustration  of  an  effort  to  supply  certain  and 
practical  relief  from  the  burden  of  accidents  and  sickness 
in  industrial  occupations  and  the  experience  of  these  soci- 
eties is  of  almost  inestimable  value  in  any  attempt  to  arrive 
at  a  sound  actuarial  basis  for  accident  and  sickness  insur- 
ance. They  have  still  another  very  practical  bearing  on  the 
American  situation  because  they  are  so  closely  akin  to  our 
assessment  insurance  in  fraternal  beneficiary  associations. 
The  limits  of  this  bulletin  do  not  permit  any  detailed  de- 
scription of  the  organization  and  purposes  of  these  societies 
but  a  very  complete  and  excellent  account  of  them  includ- 
ing a  careful  explanation  of  the  efforts  to  get  their  insur- 
ance departuicnts  on  a  sound  financial  basis  may  be  found 
in  English  Associations  of  Workingmen  by  J.  M.  Baern- 
reither. 

(rot'irntue/if  Su/terrisiou.  The  Friendly  Societies  are 
not  under  any  form  of  government  supervision  unless  they 
are  registered  under  the  act  of  1896.  Registration  is  wholly 
a  voluntary  arrangement  on  the  part  of  the  society.  The 
law  of  1896  provides  that  there  shall  bo  a  chief  registrar 
of  friendly  societies  who  must  have  been  a  barrister  of  not 
less  than  twelve  years  standing  and  who  shall  be  supplied 
with  such  assistants  and  actuaries  as  the  duties  of  his  office 
may  require.  His  chief  duties  are  to  collect,  publish  and 
circulate  'such  information  on  the  subject  of  the  statistics 
of  life  and  sickness  and  the  application  thereof  to  the  busi- 
ness of  friendly  societies  and  such  particulars  of  their  re- 
turns and  valuations  and  such  other  information"  as  he 
raav  deem  useful  to  the  members  of  the  societies.     In  ad- 


60  ACCIDENT  INSURANCE  FOR  WORKINOMEN 

dition  to  the  foregoing  he  is  required  to  cause  to  be  con- 
structed and  published  tables  for  the  payment  of  sums  of 
money  on  death,  in  sickness  or  old  age.  The  adoption  of 
these  tables  is  wholly  optional  on  the  part  of  the  societies.' 

Registration.  Any  seven  or  more  persons  may  become 
a  registered  Friendly  Society  by  following  out  the  pro- 
cedure set  forth  in  the  law.  Societies  may  be  registered 
for  a  number  of  purposes  but  the  principal  one  is  for  the 
relief  or  maintenance  of  the  members  and  their  families 
and  dependents  in  the  event  of  certain  contingencies.  Cer- 
tain legal  advantages  and  privileges  accrue  to  registered 
societies  just  as  to  incorporated  companies.  They  are 
also  required  to  have  a  registered  office  where  communica- 
tions and  notices  may  be  sent,  to  submit  their  books  an- 
nually to  a  public  auditor  or  some  one  legally  authorized 
to  audit  them,  to  render  an  annual  statement  of  receipts 
and  expenditures,  funds  and  effects  of  the  society,  to  make 
a  valuation  of  their  assets  and  liabilities  once  every  five 
years;  and  to  furnish  gratuitously  every  member  or  person 
interested  in  the  funds  of  the  society,  an  annual  statement. 

Valuation.  Registration  is  optional  on  the  part  of  a 
friendly  society,  but  a  valuation  of  its  accounts  once  every 
five  years  is  compulsory  for  all  societies  which  have  regis- 
tered. The  valuation  must  be  made  by  a  valuer  chosen 
by  the  society,  and  the  report  must  include  a  statement  of 
the  assets  and  liabilities,  showing  the  benefits  assured  and 
the  contributions  receivable  by  the  society  and  of  its  funds 
and  affects,  debits  and  credits.  This  valuation  is  the  es- 
sence of  all  the  governmental  regulation  of  the  English 
Friendly  Societies.     Its  purpose,  nature  and  extent  have 


>  See  English  Act  tor  the  Registration  of  Friendly  Societies  1896.    59-60 
Vict.  No.  25. 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  61 

been  very  clearly   expressed    by    Mr.  Baernreither  in  his 
English  Associations  of  Workingmen,  as  follows: 

"The  investigation  required  by  a  valuation  of  this  kind  is,  as 
we  have  seen,  a  comprehensive  one.  Starting  with  an  observa- 
tion of  the  experience  of  the  society  during  the  last  few  years,  it 
examines  the  management,  takes  into  consideration  the  occupa- 
tions of  the  members  and  their  habits  of  life,  the  influence  of 
local  relations  and  the  state  of  industry,  then  calculates  each 
branch  of  insurance  separately,  and  finally  arrives  at  a  result, 
which  depends  not  only  on  a  mathematical  valuation  but  on  an 
analysis  of  all  the  elements  that  effect  the  stability  and  growth 
f  the  society,  on  an  anatomy  of  all  its  vital  organs.  The  younger 
Mr.  Neison,  in  his  recent  work,  has  expressed  this  thought  very 
accurately.  'A  valuation  properly  conducted,'  he  says,  'presents 
the  means  of  correcting  any  misconceptions  of  the  risks  formed 
at  the  starting  of  the  society,  and  this  is  its  most  important 
feature.  The  purpose  of  valuation  is  to  maintain,  as  it  Avere, 
the  touch  between  the  risks  as  they  are  and  as  they  are  assumed 
to  be  in  the  bases  of  the  contracts,  and  periodically  to  adjust 
such  differences  as  may  arise.  Due  effect  is  thereby  given  to  all 
local  circumstances  and  features,  which  may  be  special  to  a  par- 
ticular society;  and  the  skill  of  the  actuary  consists  not  in  the 
performance  of  so  many  multiplications  of  the  number  of  mem- 
bers by  the  values  of  specific  benefits,  for  any  one  with  a  slight 
mathematical  knowledge  can  effect  this,  but  in  drawing  proper 
deductions  from  the  varying  circumstances  of  each  society  as  ex- 
hibited in  its  records,  and  in  knowing  how  much  force  may 
safely  be  attributed  to  each  particular  variation  in  its  working 
This  constitutes  the  mainspring  of  an  efficient  valuation.' 


>  Baernreither— English.  Associations  of  Workingmen,  p.  270. 


«2  ACCIDENT  INSURANCE  FOR  WORKINQMEN 


METHODS     OF    CONDUCTING    STATE 
INSURANCE 


State  Insurance  in  Maryland 

Legal  JJohility  of  Employers.  So  far  but  one  effort 
has  been  made  to  operate  a  system  of  state  insurance  in 
the  United  States.  This  system  was,  nominally  at  least, 
a  voluntary  one  but  on  account  of  constitutional  defects 
it  was  in  operation  for  such  a  short  time  that  very  little 
<!an  be  inferred  in  re*rard  to  its  economical  aspects.'  In 
1902  the  Maryland  Legislature  passed  an  act^  which  made 
all  employers  in  certain  specified  industries  liable  under 
the  Public  General  Law  for  damagres  to  an  employee  in- 
jured as  the  result  of  the  employers'  negligence,  abrogated 
the  fellow  servant  rule  and  specified  that  when  the  injury 
was  due  to  the  joint  negligence  of  both  the  employer  and 
the  employee  then  the  emi)loyer  should  be  liable  for  one- 
half  the  damages  sustained  by  tlie  injury  or  death.  The 
act  ai)plic'd  to  all  individuals,  partnerships  and  corpora- 
tions, private  or  municipal,  engaged  in  operating  any  coal 
or  clay  mine,  quarry,  and  steam  or  street  railroad,  also  to 
incorporated   towns,  cities  or  counties,  or  the   contractors 


'  A  detailed  statement  of  the  ImsJness  transact»Hi  under  this  act  may  be 
found  in  Bulletin.  No.  57,  I'.  S.  Bureau  of  Lalx)r.  pp.  645— 648. 
"  Laws  of  1902.  c.  139. 


ACCIDENT  INSURANCE  FOR  WORKINGMEN  63 

for  the   same,  engaged  in  constructing  sewers   or  in   any 
other  work  of  excavation  or  construction. 

Liability  Relieved  by  Insurance.  The  act  then  pro- 
vided that  employers  in  these  occupations  might  be  re- 
lieved from  such  liability  if  they  paid  in  monthly  install- 
ments to  the  Insurance  Commissioner  the  following  annual 
,8ums  for  each  workman  employed: 

1.  In  mining  or  quarrying         -         -  .         .     $1.80 

2.  In  operating  a  steam  railroad         -         -         -       3.00 

3.  In  operating  a  street  or  trolley  road  -         -         .60 

4.  Every  town,  city  or  county  (or  the  contractor  there- 

for) engaged  in  constructing  a  sewer,  or  any  other 
excavation  or  physical   structure,  such  annual  sum 
as  the  insurance  commissioner  should  deem  neces- 
sary  to   insure  such  employees  for   Si 000  each   in 
event  of  death,  considering  the  occupation  or  trade 
risk  involved. 
Employers   were   i)ermitted   to   deduct  one-half   of  the 
amounts  paid  from  the  wages  of  the  workmen  after  having 
notified  them  in   advance  that  this  would  be  done.     They 
were  not,  however,  entitled  to  the  benefits  of  tlie  law   un- 
less they  made  a  certified  report   on   the   first   Monday   of 
each    month  to   the   Insurance   Commissioner   stating   the 
number  of  persons  employed  in  the  resi)ective  occupations 
during  the  preceding  month,  including  those  employed  for 
only   a  part  of  the   month,  and  tlie  estimated   number  of 
those  to  be  employed  during  tlie  montli  of  the  report,  and 
paid  in   advance  the  proper  monthly  installment  for   each 
person  employed. 

J^oirers  of  List/ntnce  Coniniiatiioner.  The  insurance 
<5ommissioner  was  authorized  to  receive  and  administer  all 
the  money  or  insurance  premiums  so  received  and  to  keep 


64  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

a  separate  account  of  them  which  was  to  be  known  as  the 
Employers'  and  Employees'  Co-operative  Insurance  Fund. 
The  monthly  balances  were  to  be  invested  according  to 
law  in  certain  safe  and  convertible  securities  and  full  sta- 
tistics of  the  operation  of  this  function  of  the  department 
were  to  be  kept.  A  benefit  of  $1,000  was  to  be  paid  in 
the  event  of  death  of  an  employee  as  soon  as  the  insurance 
commissioner  was  "satisfied  by  adequate  evidence  of  such 
death"  that  it  came  within  the  provisions  of  the  law.  In 
addition  to  the  powers  mentioned  above  the  insurance 
commissioner  was  vested  with  plenary  power  to  determine 
all  disputed  cases  which  might  arise  in  the  administration 
of  the  law  and  to  regulate  from  year  to  year  the  rates  of 
premiums  payable  in  order  to  preserve  such  fund  and  pay 
the  death  indemnifications  provided  for.  Provision  was 
also  made  whereby  he  might  on  application  and  hearing 
exonerate  an  employer  from  all  liability  imposed  by  the 
act  if  the  employer  showed  satisfactorily  that  his  em- 
ployees were  entitled  to  equal  benefits  in  some  other  insur- 
ance scheme  to  which  he  contributed  his  share. 

77ie  Act  Unconstitutional.  This  act  was  declared  uncon- 
stitutional in  1904  after  it  had  been  in  operation  but  twen- 
ty-two months  because  it  vested  the  insurance  commissioner 
with  judicial  authority  and  deprived  the  people  of  a  right 
of  trial  by  jury  in  certain  cases  which  they  had  previously 
enjoyed.  The  decision  was  rendered  in  the  Common 
Pleas  Court  of  Baltimore  but  was  never  appealed  to  the 
district  or  supreme  courts.  The  insurance  commissioner 
immediately  distributed  the  funds  collected  and  discon- 
tinued this  function  of  his  department.  The  opinion  of 
the  Baltimore  Common  Pleas  Court  is  here  printed  in  full 
as  it  was  copied  from  the  records. 


ACUIDENT  INSURANCE  FOR  WORKINOMEN  65 

Andrew  J.  Franklin  vs.  Tho  Unitinl  Railway  &  Electric  Com- 
pany of  Baltimore  in  the  Court  of  Common  Pleas. 

The  demurrer  to  the  plea  in  this  case  depends  for  its  deter- 
mination upon  the  constitutionality,  vel  non,  of  Chapter  139  of 
the  Acts  of  Assembly  of  1902.  This  act  had  for  its  purpose  the 
creation  and  maintenance  of  a  co-operative  insurance  fund  in 
the  hands  and  under  the  supervision  of  the  State  Insurance  Com- 
missioner for  the  benefit  of  employees  in  certain  enumerated 
lines  of  employment.  It  required  the  employers  in  these  occu- 
pations to  pay  into  the  hands  of  the  Insurance  Commissioner 
a  certain  sum  for  each  employee  in  service,  and  in  the  event  of 
death  from,  or  as  the  result  of  accident,  made  the  sum  of  $1,000 
payable  to  the  widow  or  children  of  the  deceased,  as  the  Insur- 
ance Commissioner  should  think  fit.  The  act  provided  for  the 
payment  of  the  death  benefit,  in  two  classes  of  cases  in  which 
there  was  previously  no  right  of  action,  viz:  where  the  death  re- 
sulted from  negiigonce  of  a  fellow  servant,  and  where  the  de- 
ceased had  by  his  own  negiigonce  directly  contributed  to  his 
death. 

But  for  the  handling  and  disbursement  of  this  entire  fund 
"plenary  power"  was  lodged  in  the  hands  of  the  Insurance  Com- 
missioner, thus  investing  him  with  judicial  or  quasi  judicial 
powers,  and  that  without  any  provision  for  a  trial  by  a  jury,  or 
any  right  of  appeal  from  his  conclusions.  Had  the  act  stopped 
hero  it  might  well  have  been  argued  that  inasmuch  as  it  provided 
for  a  fund  for  the  benefit  of  certain  widows  and  orphans  who 
would  otherwise  be  remediless,  it  was  within  the  power  of  the 
legislature  to  place  the  administration  of  that  fund  in  the  hands 
of  such  officials  as  itmightsee  fit.  But  the  act  did  not  stop  with 
the  provisions  already  referred  to,  but  also  embraced  cases  where 
the  death  had  been  caused  by  the  negligence  of  the  employer, 
cases  where  there  would  be  a  clear  right  of  action  in  the  courts 
under  e.xisting  law.  It  also  enacted  that  the  employers  who  made 
the  payments  provided  in  the  act  should,  by  such  payments,  be 
exempted  from  further  liability. 

The  eftect  of  the  act  was,    therefore,  not    only  to    vest  in   the 

Insurance  Commissioner  powers  and  functions  essentially  judicial 

in  their  character,  but  to  take  away  from  citizens  a  legal  right 

which  they  theretofore  enjoyed,  and  which  could  be  enforced  by 

5' 


66  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

them  in  the  courts,  and  also  to  deny  to  them  the  right  to  have 
their  cases  heard  before  a  jury.  It  is  only  necessary  to  clearly 
understand  the  provisions  of  this  act  to  see  that  they  are  indirect 
conflict  with  several  of  the  provisions  of  the  constitution  of  the 
state.  Thus  art.  5  of  the  declaration  of  rights,  assures  to  the 
people  the  right  of  a  trial  by  jury,  Knee  vs.  City  Pass.  Ry.,  87 
Md.  624.  Art.  19  gives  to  everyone  for  injury  done  to  him  in  his 
person  or  property,  a  remedy  by  the  course  of  the  law  of  the  land. 
Yet  both  of  these  guarantees  are  completelj'  ignored  by  the  act 
in  question.  Without  prolonging  the  matter,  therefore,  it  is  so 
clearly  evident  that  the  act  in  question  is  framed  in  total  disre- 
gard of  the  provisions  of  the  constitution  that  the  act  must  be 
declared  void,  and  the  demurrer  sustained. 

Signed  Henry  Stockbridge, 

Judge. 

Accident  Insurance  in  New  Zealand 

/State  lustirance.  The  accident  insurance  law  of  New 
Zealand  is  of  interest  in  an  analysis  of  this  kind  because 
it  illustrates  a  method  by  which  state  insurance  is  con- 
ducted. In  New  Zealand  the  political  organization  of  the 
state  conducts  an  insurance  office  and  state  officials  admin- 
ister the  funds  of  the  office.  The  insurance  is  conducted 
according  to  actuarial  principles  in  competition  with  pri- 
vate corporations.  Insui-ance  in  the  state  fund  is  purely 
voluntary  on  the  part  of  all  policy  holders.  The  point  of 
particular  interest  in  connection  with  the  New  Zealand  in- 
surance department  is  the  fact  that  the  original  capital  for 
the  department  is  raised  on  the  credit  of  the  government, 
that  a  sinking  fund  is  created  out  of  the  proceeds  of  the 
accident  branch  for  the  redemption  of  the  government 
securities  when  they  mature,  and  that  a  deficiency  in  the 
cash  funds  of  the  insurance  department  shall  be  made  up 
out  of  the  public  treasury.  Any  money  advanced  to  the 
insurance  department  in  this   way  is  considered  as  a  loan 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  67 

which  is  to  ba  returned  to  the  public  treasury  as  soon  as 
practicable  out  of  th?  proceeds  of  the  insurance  office.  A 
brief  abstract  of  the  accident  insurance  law  of  1899  is 
given  in  the  following  paragraphs:' 

Accident  Uranch.  The  Commissioner  of  Insurance  is 
authorized  to  establish  an  accident  branch  of  the  govern- 
ment insurance  department  for  the  purpose  of  transacting 
a  personal  accident  and  employers'  liability  business.  He 
is  authorized  to  enter  into  such  contracts  for  or  relating 
to  insurance  against  accident  as  are  usually  undertaken  by 
insurers  against  accident,  including  reinsurance,  in  New 
Zealand  or  elsewhere  of  the  risks  taken. 

Capital,  The  governor  in  council  is  authorized  to  raise 
capital  not  exceeding  25,000  pounds  for  an  accident 
branch  of  the  government  insurance  department  by  issuing 
debentures  or  scrip,  according  to  the  stock  law  of  1877, 
and  to  i)rescribe  the  mode  and  conditions  of  repayment 
and  the  rates  of  interest  thereon.  The  board  is  author- 
ized to  make  temporary  advances  out  of  tlie  government 
insurance  account  in  lieu  of  such  capital. 

/Sinking  Fund.  A  sinking  fund  is  provided  for  in 
order  to  create  a  fund  for  the  redemption  at  maturity  of 
all  securities  issued  in  respect  of  capital  raised  under  the 
Act. 

Reserve  Funds.  Such  reserve  funds  for  the  purpose  of 
the  Accident  Insurance  branch  shall  be  set  aside  out  of 
surplus  profits  as  the  governor  by  order  in  council,  may 
determine. 

Provision  for  Deficits,  (l)  If,  after  recourse  has  been 
had  to  the  available  funds  and  securities,  the  balance  in 


'  Accident  Insurantre  Law  of  New  Zealand,  1S9!),  (53  Vict.  No.  20. 


68  ACCIDENT  INSURANCE  FOR  WORKINGME^_ 

the  government  accident  insurance  account  is  at  any  time 
insufficient  to  meet  the  charges  thereon,  it  shall  be  the 
duty  of  the  Controller  and  Auditor-General,  under  the 
warrant  of  the  Governor  and  on  the  retiuisition  of  the 
Colonial  Treasurer,  countersigned  by  the  Commissioner,  to 
issue  the  amount  of  such  deficiency  out  of  the  Consolidated 
Fund  to  the  Colonial  Treasurer  to  ba  transferred  by  him 
to  the  credit  of  the  Government  Accident  Insurance  Ac- 
count. 

(2)  It  shall  be  the  duty  of  the  Colonial  Treasurer  to  cer- 
tifiy  every  such  deficiency  to  both  Houses  of  the  General 
Assembly  within  fourteen  days  after  the  issue  of  such 
moneys  from  the  Consolidated  Fund,  if  Parliament  is  sit- 
ting, or,  if  not,  then  within  fourteen  days  after  the  com- 
mencement of  the  next  ensuing  session  thereof. 

(3)  All  moneys  so  issued  and  transferred  shall  be  deemed 
to  be  advances  by  way  of  loan,  and,  with  interest  thereon, 
or  on  so  much  thereof  as  for  the  time  being  remains  un- 
paid, computed  at  the  rate  of  five  per  centum  per  annum, 
shall,  without  further  appropriation  than  this  Act,  be  re- 
paid into  the  Consolidated  Fund  by  the  Commissioner  out 
of  the  Government  Accident  Insurance  Account  as  soon  as 
practicable,  having  regard  to  the  balance  in  that  account. 

TcLi'dtion.  The  Commissioner  of  Insurance  is  liable  to 
assessment  and  taxation  in  the  same  manner  and  to  the 
same  extent  as  in  the  case  of  an  accident  insurance  com- 
pany. 


ACCIDENT  INSURANCE  FOR  WORKINOMEN  69 


CONCLUSION 


A  study  of  the  foregoing  pages,  and  more  particularly 
the  statutes  cited  there,  reveals  the  fact  that  in  many  re- 
spects the  requirements  of  various  American  states  for  the 
insurance  companies  under  their  jurisdictions  are  quite 
uniform  in  regard  to  the  amount  of  capital  retiuired,  the 
resei-ves  to  be  maintained  and  the  method  of  determining 
them  and  the  manner  in  which  imi^airments  of  capital  and 
deficiencies  in  assets  are  to  be  made  good.  As  a  rule  very 
little  has  been  done  in  this  country  toward  permitting  the 
organization  of  stock  or  mutual  companies  for  the  purpose 
of  transacting  employers'  liability  or  workmen's  collective 
insurance,  or  encouraging  the  formation  of  any  kind  of 
company  specially  adapted  to  the  handling  of  this  kind  of 
business.  A  comparison  of  the  laws  of  American  states 
with  those  of  European  countries,  especially  Austria  and 
Germany,  shows  that  a  great  deal  more  has  been  done 
there  than  here  toward  working  out  a  minute  classification 
of  occupations  and  industries  according  to  the  hazard  in- 
volved and  toward  encouraging  the  prevention  of  accidents 
through  the  activity  of  the  insurance  corporations  where- 
by the  cost  of  insurance  is  greatly  reduced  and  the  burden 
of  industrial  accidents  more  equitably  distributed.  It  is 
evident  that  these  countries  are  attempting  to  do  a  great 
deal  in  the  way  of  modifying  their  law  relating  to  the  legal 


70  ACCIDENT  INSURANCE  FOR  WORKINGMEN 

liability  of  employers  for  accidents  to  their  workmen  by 
encouraging  the  organization  of  insurance  corporations 
along  trade  lines  in  which  workmen  will  be  collectively  in- 
sured against  accidents  in  the  course  of  their  employ- 
ment and  still  all  the  essential  requirements  of  a  solvent 
institution  be  carefully  observed. 


No. 

1. 

No. 

2. 

No. 

3. 

No. 

4. 

No. 

5. 

No. 

6. 

No. 

7. 

No. 

8. 

No. 

9. 

No. 

10. 

No. 

11. 

No. 

12. 

No. 

13. 

No. 

14. 

No. 

15. 

No. 

16. 

No. 

17. 

No. 

18. 

No. 

19. 

No. 

20. 

WISCONSIN    LIBRARY    COMMISSION 

COMPARATIVE  LEGISLATION  BULLETINS 

Railway  Coemploymeut . 

Lobbying. 

Corrupt  Practices  at  Elections:    Contributions  and 

Expenditures.     (Out  of  print) 
Exemption  of  Wages. 

Municipal  Electric  Lighting.     (Out  of  print) 
Trust  Company  Reserves.     (Out  of  print) 
Taxation  of  Trust  Companies.     (Out  of  print) 
Municipal  Gas  Lighting.     (Out  of  print) 
Boycotting.     (Out  of  print) 
Blacklisting.     (Out  of  print) 
The  Initiative  and  Referendum:     State  Legislation. 

(Out  of  print) 
The  Recall. 

Primary  Elections.     The  Test  of  Party  Affiliation. 
Proportional  Representation . 
Juvenile  Courts, 

Telephones.     Interchange  of  Service. 
Mortgage  Taxation . 
Municipal  Home  Rule  Charters. 
Tenement  House  Legislation.     State  find  LocmI. 
Accident  Insurance  for  Workiugmen. 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


i 


A    000  891  901     1 


